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By: Sam Instone

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March 17th, 2015

Revealed: 3 shocking reasons investors lose money

Financial Education

Offshore bonds and their hidden secrets

You get yourself a cup of coffee. A quick glance at the paper, then you sit back and open the email from your financial adviser.

‘Current investment landscape’… ‘market volatility'...‘the next best idea for you to switch your money into’…

Then your eyes focus on the one piece of information you care about: your portfolio valuation. Enough to ruin your weekend. Just like last time. And the time before that. And the time before that.

It goes far beyond the ups and downs you’d expect with any investment. Appalling performance seems to be endemic to your portfolio. Why is that?

There are three reasons an offshore investment bond could lose money. Here we briefly explain what they are (you can read the full story in this free report).

FREE REPORT: The shocking truth about offshore investment bonds your adviser doesn’t want you to know. Download now »

Reason #1: High charges swallow up any growth

Have you ever tried to swim with weights? It takes a lot of effort even just to stay afloat – never mind going forward.

Offshore investment bonds charges have a similar effect on your money. They swallow up growth.

Based on my experience, a typical offshore investment bond investor could be paying: 

  • 5%-1.5% annual charge to the pension or bond provider

  • £400 fixed annual fee to the bond provider

  • 5%-1.5% a year establishment charge for the first 5-10 years

  • 4-8% initial commission on the investments held in the bond

  • 1%-3% annual charge on investments (this could be much more and more opaque if you are invested in structured products)

This can add up to annual charges in the region of 6% with initial charges of up to 8%, although these can sometimes be much higher.  What’s worse, they are entirely hidden so only those with degrees in maths can work out their total cost in real terms.

How do these charges affect your money?

Imagine a portfolio of £100,000 growing by a reasonable 5% a year. Once you take charges into account, the growth over 20 years would only be equivalent to 0.08% - less than what you’d have received if you’d left the money in a bank account!

Offshore Bonds

Also, you’d have to wait 15 years before seeing any growth at all.

If instead of healthy growth you experience fantastic growth of 15% a year, charges would still eat up nearly two thirds of that, leaving you with an effective growth of just 5.95% a year.

Offshore Investment Bond

Who pockets the money you pay in charges? Find out in our FREE REPORT: The shocking truth about offshore investment bonds your adviser doesn’t want you to know. Download free report now »

Reason #2: Toxic investment mix

Offshore bonds are an investment wrapper: a container you can fill with pretty much any investment you like, with the exception of physical property.

In theory advisers should recommend a diversified portfolio appropriate to your personal circumstances, with the potential of delivering healthy performance, without too many ups and downs.

How likely is that to happen? Sadly, the odds are against you.

Firstly, because advisers often receive more hidden commission on the investments they recommend. Usually, the more ‘alternative’ and opaque the investment (e.g. hedge funds and structured products), the higher the charges and the higher the commission.    

Secondly, because advisers tend to recommend racy investments that on paper look as though they could deliver exceptional performance. As we’ve seen, you do need exceptional performance to make any money, after paying the exorbitant charges.

However, the racier the investments, the higher the risk of them suffering a horrific fall. And, once a fall has happened, the way back up is much harder than the way down.

OffshoreInvestmentBondLosses-1

So, your portfolio is likely to be an elaborate gamble, in which the only guaranteed winner is the smartly dressed (white shirt and a stripy tie), outwardly trustworthy, charismatic broker.

How much commission advisers receive? Find out in our FREE REPORT: The shocking truth about offshore investment bonds your adviser doesn’t want you to know. Download now »

Reason #3: Sold and forgotten

A portfolio loaded with racy, alternative investments is far from a case of ‘buy and forget’. It calls for in-depth research at the onset and continuous monitoring thereafter.

Once again, that’s unlikely to happen.

Very few IFAs have the time, resources and expertise to conduct quantitative and qualitative analysis on the investments they recommend

In addition, there’s little incentive for them to do so.

Your adviser receives the commission upfront – what happens next, whether you make or lose money, has no direct impact on them. Hence, once the policy has been sold, they have very little incentive to service you at all unless you allow them to regularly switch your investments (generating them more fund commission at your expense), give them more money or introduce them to your friends (referrals) whom they can also swindle. 

This is like a boss paying a new employee the whole salary for the next 5-10 years in one go on their first day. What are the chances that employee will come back to work and work hard day after day?

Regardless of what the silky-tongued salesman tells you about his ‘free’ or ‘cost-effective’ services, there is no alignment of interests. This is why countries such as the UK or Australia have banned these methods.

How does the murky world of international financial advice work? Find out in our FREE REPORT: The shocking truth about offshore investment bonds your adviser doesn’t want you to know. Download now »

What could you do?

If any of what you have read here strikes a chord, download our report and request your FREE review. 

You may be one of the few investors whose bond has been responsibly set up and consequently is not crippled by exorbitant charges. If so, the FREE review available at the end of the report will confirm that and help you put any niggling concerns to one side.

If, however, your offshore bonds were set up less than responsibly, as is sadly all too often the case, downloading this FREE report could be the beginning of a recovery. It could help you stop building someone else’s wealth and concentrate on building your own.

No obligation. No charge.

Request your free review today »

About Sam Instone

Sam Instone, CEO at AES International, is passionate about positive change and ensuring expat investors get the best results.

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