Types of investments with strong "guarantees"?

[ReadySkiDaddy]

When money managers say that they sell investments with strong "guarantees", what investments besides annuities might the be referring to? Limited partnerships? Life Settlement investments? What else?

[nun]

Quote:

Originally Posted by ReadySkiDaddy When money managers say that they sell investments with strong "guarantees", what investments besides annuities might the be referring to? Limited partnerships? Life Settlement investments? What else?

The only guarantee is that anyone who sells you an investment will get a nice chunk of your money. And anyone who describes a Life Settlement product as guaranteed should definitely be avoided.

[frayne]

Money managers, manage your money much the way Willie Sutton serviced banks.

The only guarantee is, there is no guarantee.

Just my opinion though.

[ReadySkiDaddy]

Yes. When any investment needs a "guarantee" it's because it has unique risks. "Guarantee" is CODE FOR "avoid"! The sad part is that investment advisers usually put way too many of your eggs in these high commission investments that really aren't diversified if bankruptcy can bring the whole thing down. Annuities being the prime example.

Back to the topic. What types of investments besides annuities have "guarantees"?

[MooreBonds]

Due to the recent (past 3 years) roller coaster market, the sound of the word "guarantee" is very appealing to many investors.

Take a pool of 100 average retail investors. Offer them a 10 year bond with a fixed coupon of 4%, vs a 10 year note with a "guarantee" of 4% per year.

Odds are, most will pick the 10 year "guaranteed" 4% because of the description, even though it's the exact same thing as the other.

Perhaps they are just playing a game of semantics...or perhaps it's some form of a life insurance policy (regarding "minimum interest credited" to the cash balance), or an annuity linked to the stock market but also offering a minimum increase per year (the greater of the minimum increase or some convoluted equation based on an index to yield the 'market return').

I've also seen some CDs offered (yes, bank issued, FDIC-insured CDs), which have returns tied to various baskets: currencies of certain net oil exporting countries, BRIC currencies, certain commodities, etc. They are true CDs with FDIC insurance...but as you might guess, the "guaranteed" minimum rate offered is less than a similar maturity traditional CD, since you have the prospect of increased return from the underlying baskets.

[kumquat]

Quote:

Originally Posted by ReadySkiDaddy When money managers say that they sell investments with strong "guarantees", what investments besides annuities might the be referring to? Limited partnerships? Life Settlement investments? What else?

Ponzi schemes come to mind.

[ReadySkiDaddy]

Quote:

Originally Posted by kumquat Ponzi schemes come to mind.

Yes!
Either way brokers lie, then you read the fine print and whatever the "guaranteed" return may be, usually declines after a few years. Or the investment has high risk of failure.

[jerome]

These products (providing they are serious and legal) are usually a mixture of some kind of bond in combination with one or more options. They do work but there obviously is a price to pay for the guarantee they offer: usually there is a limit to the upside, i.e. in case of a sudden burst upwards of the stock market you will not get all the benefits of that. And the other cost is the cost of the broker and the bank making these products. You can make them yourselves by buying a combination of bonds and options. Saves a lot of money and you get all the upside-potential. But you have to know what you are doing, which is not difficult but it takes time and dedication to learn.

[hlfo718]

You have to ask the money man what is his definition of guarantee. Maybe he is talking about his comp being guaranteed after selling you a crappy index annuity.

[traineeinvestor]

No one will provide a guarantee for nothing - cost of the guarantee will usually be funded by lowering the potential upside from the investment.

As a general rule of thumb - the more adjectives appear in the description of an investement the less likely it is to be an investment worth making

[easysurfer]

If it's too good to be true...well, you know the rest

[frayne]

If anybody takes to the time to read the small print it usually goes something like this; Guarantees are backed soley by the financial strength and claims-paying ability of the named insurance company.

[FinanceDude]

Don't get me started on the Ponzi scheme that is FDIC..........

[Koolau]

Back when I was young (you know - like 50) and (more) stupid (than now), I actually got in on one of these "guaranteed" deals. It was an equity indexed annuity with a guaranteed "floor" of 3.5%. Sure enough, after all the fine print took all the "profits" generated by the markets, I got the 3.5% guarantee. It was a guaranteed loss in reality because of inflation. Had I just plunked the money in a Vanguard or Fido (or heck, American Funds with a 4% load for crying out loud!) index fund, I would have been WAY ahead of the money I "made" with the EIA "product" with its "guarantee".

So, to the OP question. Yes, Virginia, there are guarantees. And yes, they may even be honored, but the guarantee is actually for the benefit of the guarantor - not for your benefit.

Regarding the "fine print", I did finally try to read it, but was so confused, I gave up. I made the sales person go through it and she didn't understand it either. Of course, by then, it was too late. By the way, once I realized I had been screwed, the surrender charges were so horrendous, that I could have ended up with a net loss had I cashed it in early. Talk about guarantees.

DON'T LET THIS HAPPEN TO YOU. Of course, YMMV.

[pb4uski]

Quote:

Originally Posted by frayne If anybody takes to the time to read the small print it usually goes something like this; Guarantees are backed soley by the financial strength and claims-paying ability of the named insurance company.

True, but isn't this true for ALL insurance products - good, bad or indifferent? (life, annuities, P&C, etc.)

I don't understand your point.

[Purron]

Quote:

Originally Posted by ReadySkiDaddy When money managers say that they sell investments with strong "guarantees", what investments besides annuities might the be referring to? Limited partnerships? Life Settlement investments? What else?

Since when do annuities have a "strong guarantee"?

[pb4uski]

Quote:

Originally Posted by Purron Since when do annuities have a "strong guarantee"?

What is stronger other than an FDIC bank account or a full faith and credit US debt instrument?

You're talking about a heavily regulated entity whose solvency is monitored by state insurance regulators and is further backstopped by state guaranty funds.

Definitely seems stronger than most corporate or municipal bonds to me.

[ReadySkiDaddy]

Quote:

Originally Posted by pb4uski What is stronger other than an FDIC bank account or a full faith and credit US debt instrument? You're talking about a heavily regulated entity whose solvency is monitored by state insurance regulators and is further backstopped by state guaranty funds. Definitely seems stronger than most corporate or municipal bonds to me.

But taxed as ordinary income.

[pb4uski]

Quote:

Originally Posted by ReadySkiDaddy But taxed as ordinary income.

What's your point?