What caught my eye this week.
A reader, John, emailed me about an old article this week. He pointed to a spreadsheet function could be used to calculate the cash component of a DIY guaranteed equity bond.
If you’re thinking “what’s that?” you won’t be alone.
That article was published in 2010. Memories of the huge financial crash were still fresh. Many people I knew were scared of putting new money into markets.
Enter the guaranteed equity bond!
Varitations of this financial product – widely-trumputed in swanky newspaper adverts at the time – promised to almost always return your money to you a few years hence, as well as giving you some of the gains on a stock market index.
Of course it wasn’t called the Almost Always Bond. But the small print contained strange catches and odd hurdles. These meant you could indeed get less back than you put in.
In addition dividends were usually ignored in the return calculation. And there was also little if any mention of the fees the financial provider would enjoy.
The bond was constructed out of derivatives contracts. Hence those specifics in the terms and conditions. I’d strongly suggest the target market for a product like this is poorly-placed to evaluate the odds of the FTSE 100 being above 8,235 on a particular day in March 2025, for example – as if anyone really can. But that implicit calculation was in the mix.
My piece explained how to create nearly the same thing for yourself from a mix of cash and a tracker fund. But with none of the complexity and opacity.
I considered updating my article for 2022, working in John’s technique. (John suggested using the CUMIPMT function from the free LibreOffice spreadsheet tool, if you’re curious).
But then I realized it has been years since I’ve seen an advert for a guaranteed equity bond.
I’m sure they still exist. But back in 2010 they were ubiquitous!
Perhaps there is a role for such a product – if appropriately demystified for the average person.
But what drives the marketing of them is clearly customer demand, not present utility.
Head Over Heels
Last year saw stock markets hit high after high. Remember all the articles about peak US valuations and a tech stock bubble and the general mayhem and euphoria?
If there was ever a time to consider investing in a product that capped your gains in exchange for protecting you from at least some of a crash, this was it.
But I don’t remember the financial services industry riding to the rescue with a marketing blitz for guaranteed equity bonds.
Doubtless it knew punters wanted more excitement and risk in a bubbly market. Not a crash bag.
Should shares continue to turn down with rate rises, inflation, and war, then eventually we’re bound to see another moment in the sun for products that promise investing alchemy.
As Josh Brown puts it:
As you’re reading this, someone is hard at work in a lab somewhere cooking up the next big idea in Upside Minus Downside technology.
It might be an ETF. It might be a hedge fund. […] A structured note.
Who knows what form it could take next time?
The details will change, the wrapper will seem revolutionary, but the underlying idea will be a story as old as time.
And it will captivate the minds of some of the most intelligent people around. Doctors, lawyers, bankers, brokers, scientists, builders, politicians. None of us are completely impervious to a story that good.
Have a great weekend!
It’s not fair! Sequence of returns risk – Monevator
InvestEngine review – Monevator
From the archive-ator: Never say never again – Monevator
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Bank of England hikes rates to 0.75%, expects inflation to hit 8% soon – Sky
Treasury considers advice/guidance reform – CityWire
Men’s suits dropped from inflation basket, antibacterial wipes added – ThisIsMoney
HSBC to close these 69 branches in 2022 – Which
Buffett’s Berkshire Hathaway breaks above $500,000 a share – CNBC
UK can eliminate Russian gas this year, study finds – Guardian
Forgotten bank account pays out 60 years later – BBC
Covid resurgent in UK with infections in over-70s at record high – Guardian
Great Depression or bust – Of Dollars and Data
Products and services
Netflix plans to start charging for password sharing, running trials – NPR
The best deals on Cash ISAs (but they won’t beat inflation) – ThisIsMoney
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Nine ways to cut your household bills – Be Clever With Your Cash
Amazon credit cards to change from 2023 – Which
Time-limited offer: open an account with InvestEngine via our link and get £25 when you invest at least £100, PLUS additional cashback when you invest £1,000 or more in an ISA (new customers only, T&Cs apply) – InvestEngine
Could a 0% balance transfer credit card help you clear debts? – ThisIsMoney
Homes for sale from the 1960s, in pictures – Guardian
Comment and opinion
Why I’ll never buy an active investment fund again [Search result] – FT
Managing uncertainty, the biggest risk of all – Advisor Perspectives
How to crack HMRC’s tax codes – ThisIsMoney
In case you’re wrong – Humble Dollar
Name that fund manager – Quietly Saving
Life’s a circus – Humble Dollar
Budget to beat the rising cost of living [Podcast] – FT Money Clinic
Extremely bad decisions – Behavioural Investment
Tom Brady, retirement planning, and retirement remorse – Forbes
What does the global debt overhang mean for interest rates? – Joachim Klement
How to make $400,000 on a single real estate investment – Banker on FIRE
Liquidate – Indeedably
The art of money – The Root of All
Recession risk mini-special
Rising recession risk [US but relevant] – Pragmatic Capitalism
Surging oil prices have economists worried – Full Stack Economics
Predicting the next recession [US but interesting] – Calculated Risk
Risk of UK recession grows despite January boom – Evening Standard
Crypt o’ crypto
Ukraine partners with FTX and Everstake for crypto fundraising – The Block
NFTs have crashed but don’t despair – Howard Lindzon
The Bored Ape Yacht Club’s deal for CryptoPunks is all about IP – Protocol
Naughty corner: Active antics
5×2 matrices that can help you become a better investor – Validea
Cliff Asnes: value stocks not just an interest rate bet – Institutional Investor
Which analysts to follow – Klement on Investing
Wise words from Walter Schloss – Novel Investor
Kindle book bargains
Posh Boys: How English Public Schools Ruin Britain by Robert Verkaik – £0.99 on Kindle
Poverty Safari: Understanding the Anger of Britain’s Underclass by Darren McGarbey – £0.99 on Kindle
Hacking Growth: How Today’s Fastest-Growing Companies Drive Breakout Success by Sean Ellis and Morgan Brown – £0.99 on Kindle
The Almighty Dollar: Follow the Incredible Journey of a Single Dollar to See How the Global Economy Really Works by Dharshini David – £1.89 on Kindle
Electric planes are coming sooner than you think – Afar
Great Barrier Reef hit by sixth bleaching event – Guardian
Off our beat
Slobbing out and giving up: entering ‘goblin mode’ – Guardian
The global oil market is based on a fiction – The Atlantic
Children of Men is really happening – Wrong Side of History
Reassessing the women of The Godfather at 50 – BBC
Put yourself in their shoes – Spilled Coffee
“Perhaps there’s no better act of simplification than climbing a mountain. For an afternoon, a day, or a week, it’s a way of reducing a complicated life into a simple goal. All you have to do is take one step at a time, place one foot in front of the other, and refuse to turn back until you’ve given everything you have.”
– Ken Ilgunas, Walden on Wheels: From Debt to Freedom
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Whatever happened to the guaranteed equity bond? Plus the rest of the week’s good reads…
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