One of the sub portfolios that I have is an insurance portfolio: in Belgium known as Branch 21. It is actually more a savings product than an investment product and the returns are not super sensational. They come with a 2 pct entry tax fee, and very often the same entry fee for the broker. But, they are capital guaranteed. So, why would you take them?
- Having a safety cushion that I can put under my investment portfolio is something that I wanted so I can sleep at night. The fact that it is capital guaranteed appealed to me.I guess I have a lower risk tolerance than I believe. At least, I have that base now covered.
- The returns are not sensational, but it is ok to expect the product to have a net return above the inflation and above the better savings account.
- If you look around you can get a decent broker fee, to limit the costs.
- They come with an inheritance clause: You can nominate the person that should get the money if something happens to you. I use this to make sure the person that I want, get what I want them to get.
Why some people don’t buy them
- You need to keep them 8 year, or you are taxed and loose the advantages. They are thus not liquid.
- they have no negative correlation with stocks, as bonds are supposed to have (however, recently, this is less sure)
- Entry tax and fee
I can fully understand that some people do not want these products. But for me, they are the perfect cushion of my investment portfolio. I just have to pay attention that they do not become a too big part of my portfolio.
For now I have invested an amount bigger than I want, but some 12 pct of this portfolio is now past the 8 years period and can be whitdrawn penalty free. It thus as a top notch savings account. I will enjoy this while it lasts (till the end of the year). I will between now and then use this liquidity to further invest in my tracker portfolio. Either when the markets take a correction, if not, it will be part of my monthly tracker investment purchase plan.
Do you have the need for an extra safety cushion?