Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority
Recently a financial promotion offering over 8% annual income crossed my desk. Buried in miniscule small print were the usual risk warnings.
The reality is that 8% is no longer possible unless you are prepared to take silly risks, i.e. those risks where the odds are against you. We warned in Contrary View No. 3 (21st August 2000), There are bonds and bonds, that corporate bonds spell trouble. Well, since then CGNU has cut the income on its bond fund by one-fifth.
The problem is that past performance statistics (which are what the 8% claim is based on) positively aid innocent investors to get their timing utterly wrong, buying when they should be selling and selling when they should be buying. Here's another stable door that needs to be slammed firmly shut before the event.
It is impossible to earn more than the going yield on a Gilt unless you take risk. Those higher yields carry risks that are not obvious, until the yield cut comes round. Then it is too late! The problem is that the automatic assumption of risk does not lead to reward. When the odds are against you, assuming risk is more likely to lead to loss.
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