Don’t be fooled by marketing speak

FINANCIAL companies love creating complicated products to attract new investors. In fact, their absolute favourite products are “guaranteed investments” usually linked to something that is in vogue in the investment markets at the time.

For example, when offshore investments are performing well and the rand is weak, you will get a plethora of new offshore-linked guaranteed products.

So it is no surprise that these products are being launched at a rapid rate now. Many readers are sending me questions about these products, wanting to know if they are worth considering.

Don’t get me wrong, I enjoy getting questions, but I always groan when they ask about new products from insurance companies.

This is because I just know I will have to trudge through mountains of marketing speak in an attempt to decipher if these new products will really be good for investors.

My findings so far: some of them are better than others, but the bottom line is that none of them has been compelling enough to attract either my clients’ money or mine. Here’s why. If an investment product cannot be properly explained on one A4 page, then you need to be very careful. And if it takes a glossy brochure of more than 10 pages, be ultra cautious.

I am not implying that you are being scammed, but rather that there are potential pitfalls you need to investigate and avoid.

The law does not protect you if a product provider can prove you have been fully informed about an investment. This is why insurance companies issue massive contracts with their products and remind you repeatedly to read them.

If anything goes wrong, they can simply refer you to clause 607 on page 724. For me, simpler is always better. With a complex product, you also need to be aware of the implications of the product’s intricacies in addition to the usual investment risks, which are difficult enough to understand on their own. I just can’t convince myself that complex products issued by insurance companies are totally favourable to you. I am more certain that they are good for the product provider.

After all, these are the guys who employ teams of actuaries who spend countless hours calculating the probability of events and how their company can profit from them.

I prefer to avoid dealing with investments created by actuaries because they understand the odds better than I do, and I am not sure that I will always benefit to the same extent as the product provider.

If you have money to invest, and you are not sure where to invest it, always defer to simple, transparent

If an investment product cannot be explained on an A4 page, then you need to be very careful

investments that you can understand.

Avoid products that have contracts that oblige you to keep your money invested for long periods (unless you are investing in a retirement annuity) and especially avoid products that charge initial fees or exit penalties.

For me, the unit trust market is the best example of transparent investments for most investors.

Direct share portfolios are good for high net worth investors, provided the costs are reasonable. Also, if you have no idea what unit trust to choose, you can always select an index fund.

Ingram is a director of Galileo Capital