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A fragile ego will not make money.

Current debates about potential investments for the typical individual almost invariably revolve round the perceived merits of tracker funds and Isas.

And it is certainly easy to plump for the flavour of the month.

Many financial advisers, and personal finance providers in general, are eager to persuade clients to put money into the latest fashionable products.

There is always a subliminal feeling that trendy must mean better.

It is a philosophy which despite its obvious naivety can be accepted in most areas of life.

If your ego is so fragile that you must drive a 4x4 on the school run because everyone else does, have to use the omelette pan recommended by Delia and just cannot live without the latest boys' toys, no one else suffers.

But with investments, your view needs to be more rational, unless you are one of those fortunate people who can afford not to care about potential returns.

With-profits bonds are a notable example of a product that has been around for years, and therefore have not got the shiny new feel.

However, the returns from the sector have been consistently good over a long period.

A sizeable number of investors are certainly aware of the merits of such bonds, with more than pounds 9.5 billion put into them last year. The total was up sharply from pounds 5.2 billion during 1998.

At opposite ends of the customer scale, with-profits bonds traditionally attracted slightly negative thoughts.

Those who believed the stock market is a casino preferred the possibility of making a high instant return from equities.

Cautious individuals who instinctively avoided risk often chose to put their savings into banks and building societies, rather than even consider the greater complexity of other products, such as with-profits bonds.

Many members of both groups, though, must be having second thoughts about the wisdom of their strategy.

This month's stock market volatility on both sides of the Atlantic has caused all but the most devoted share punter to consider diversifying their portfolios to include products that don't mean sleepless nights.

Meanwhile, the apparent determination of many banks and a number of building societies to regard savings accounts as a source of cheap funds is making even Miss Cautious of Sutton Coldfield look elsewhere.

The average compound annual return from with-profits bonds (net of basic-rate tax and charges) during the last five years is running at 10.3 per cent, up from 9.1 per cent in September, according to research by the With Profits Bond Shop.

As its name would imply, the Nottingham-based organisation specialises in that sector, so it would be unlikely to conclude that potential investors should look elsewhere.

But director Mr Ian Beestin has certainly assembled an impressive array of facts to tempt people to consider the bonds.

'There are a number of economic influences; the strength of the pound, the low level of inflation and the possibility that interest rates may have to come down in the medium-term to meet the convergence criteria for EMU,' he said.

Mr Beestin also points out that with-profit bonds are suitable for a range of investors - from those needing regular income to others looking for capital growth, as a planning aid for higher-rate taxpayers and to help avoid the age allowance trap.

At their simplest, the bonds are a combination of UK and overseas equities, fixed interest products, property and cash, held via a lump sum investment. Each year the provider will add a bonus to the initial investment. There may also be a terminal bonus but that is not guaranteed.

Although the bonds do not run for a fixed term, anyone surrendering them during the first five years would incur penalties and they should be considered a long-term investment.

However, the bonds do become more complex when such issues as initial and management charges, 'allocation rates' and 'market value adjuster' fees are considered. Anyone on the boundary of lower rate and higher rate tax will also have to assess the impact that a future profit on the bond will have on their financial position.

If you feel the product might be suitable for you, the best way I've seen to assess the merits and demerits of rival offerings is via the 80-page guide produced by the With Profits Bond Shop.

It is one of a number of discount brokers, but certainly provides stacks more objective information and analysis than its rivals.

The latest version of the guide looks at the top half dozen bonds in six categories; from five-star performers to those with low charges. Thirty-two bonds are assessed, of which eight can be obtained only from the provider.

Mr Beestin says the remaining 24 products can be bought through his company. The savings on a pounds 20,000 investment range from pounds 896 to pounds 600, as the shop does not have the high overheads of the providers.

You may never have considered with-profit bonds but if you have studied this guide thoroughly, you will certainly be sufficiently informed to decide if they are for you, and which one you want.

More details from the With Profits Bond Shop, at Castle Heights, 72 Maid Marian Way, Nottingham, NG1 6BJ, or on 0115 958 7588.
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Author:Finance, IAN HALSTEAD Personal
Publication:The Birmingham Post (England)
Date:Apr 15, 2000
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