How to Have a Happy Ending; Film Examiner Rebecca Mackay Lost Thousands of Pounds When Stock Markets crashed.To Avoid Another Horror Show, Our Experts Rate the Financial Blockbusters-

Article excerpt


The stock market has finally bared its teeth in the past few months. After spectacular rises over the past four years, savers have recently been bluntly reminded that shares can also fall - and fast.

Rebecca Mackay knows this to her cost. Rebecca, 46, confronts fictional dangers every day. Her job as an examiner for the British Board of Film Classification means she watches countless hours of thriller and horror films every year.

She loves her job, but she does not want the shocks and danger in real life - particularly when it threatens to wipe out her savings.

Single mum Rebecca, whose son Luke is 14, invested in equity Peps in the Nineties.

'The markets fell one year and I lost several thousand pounds,' she recalls.

'I know I should have been able to leave the money there to recover, but I suddenly needed it to move house.

'The experience gave me cold feet about risky investments.' Now, Rebecca, who lives in Balham, south London, saves into a mix of cash Isas, high-interest deposit accounts and Premium Bonds. But she gives herself the opportunity to gain from stock market rises by also holding guaranteed equity bonds.

Gebs (see below) operate over a fixed term and protect the investor's original capital while offering returns linked to the performance of a stock market - usually the FTSE All-Share or FTSE 100 index.

Rebecca has taken out a number of Gebs with National Savings and so far she is pleased. ' I don't understand stock markets,' she says. 'This feels right for me. I'm not going to lose out.' Rebecca has opted for just one of many routes investors can take if they want equity-style returns with less of the risk.

The upsides and pitfalls of Gebs and their alternatives are covered below.

We also give our verdict on these 'timid' schemes:

Guaranteed Equity Bonds

INVESTORS commit minimum lump sums ranging from [pounds sterling]500 to [pounds sterling]5,000, depending on the provider, for a fixed period. Most are for three or five years and many are available as Isas.

At maturity, investors get back their money plus a percentage of the growth of a stock market index, usually the FTSE 100, but sometimes another foreign index or a mix of indices.

Many of these bonds are highly complex, calculating their payouts based on index averages over certain periods within the term, or capping their payouts if the stock market grows rapidly.

Some carry guaranteed minimum returns, such as the deal from Coventry Building Society.

Available until June 14, this fouryear Geb requires a minimum [pounds sterling]3,000 investment and promises to return the capital plus a guaranteed 14.25 per cent.

That rises if growth of the FTSE 100 exceeds 28 per cent over the same period.

The National Savings Geb (Issue 12), is available until April 24 for minimum [pounds sterling]1,000 investments. It pays 120 per cent of the FTSE 100's growth over five years with guaranteed return of capital. If the Footsie falls, you get back only the capital.

Other Gebs are being promoted by banks Abbey and Barclays, and by Britannia, Chelsea, Leeds and Newcastle building societies.

They make their money by keeping the dividend income earned by the investments.

But Justin Modray of London adviser Bestinvest warns: 'These investments have a role, but they are complex. The downside, is that investors lose the dividend stream, which is about 3.5 to four per cent a year.

'If markets rise over the term, you are unlikely to do better with these than you would with a tracker investment fund. But on the other hand, you have protection if markets fall.'

VERDICT: Pick with care

Protected Funds

LIKE Gebs, these complex investments have built-in protection to shield savers' money, but again, investors lose some market gains. …