Last updated 09:23, Wednesday, 27 August 2008

With stockmarkets falling around the world, what’s available if you’re nervous but still looking for longer term returns?

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We all know holding money on cash deposit isn’t the answer long term, but what else is there?

In response to a volatile market, providers have put together more innovative investments, many with some level of protection or guarantee.

According to a recent survey* of 2,140 people aged between 50 and 65, 87 per cent wanted some form of guaranteed income at retirement. Investors still need income and growth investments offering the chance to beat high street deposit accounts, but they want a ‘best of both worlds’ answer offering a little extra peace of mind.

This is where one alternative investment type, commonly referred to as a “structured investment product”, is catching the eye of many investors.

The FTSE 100 index of the leading 100 UK companies fell in value by 44 per cent between December 31, 1999 and January 31, 2003. Between then and June 29, 2007 it rose by 116 per cent. This year the FTSE 100 has fallen by around 15 per cent. If you’re looking for a smoother ride for your money and are prepared to give up a share of any growth, structured products may provide the answer.

So what is a structured investment? Well, what it’s not is a guaranteed investment. Your return is still based on investment performance – which could be a stockmarket index like the FTSE 100, or a basket of shares or commodities, over a fixed period such as five years.

Unlike conventional products, your money isn’t invested directly into these areas. Instead, it is split between specialised market instruments linked to the chosen index and a risk-free element which aims to provide return of initial capital at the end of the investment period.

What you can expect to receive varies according to the particular plan, but usually you will be paid a share in the return of the growth in the chosen investment, or your capital back if the index falls in value. In many cases your capital can fall in value if the chosen index has a significant fall.

Structured investments now available include a potential income of nine per cent or growth of up to 500 per cent of FTSE 100 index. You can buy products that are linked to both rises and falls in stock markets – there are hundreds of products on the market covering most eventualities.

So what’s the key to finding the ideal investment for you? Firstly, these products are not simple to understand, so independent financial advice should be sought. You should consider any underlying guarantees and what sort of market the product is linked to – some are riskier than others.

How the investment is taxed is particularly important for income investors. How long your money will be invested and how flexible it is should you need access to your monies prior to maturity of the product are also important.

*Source Aegon Group 2008

• For more information contact Armstrong Watson Money Matters on 0800 195 2161 or email moneymatters@armstrongwatson.co.uk