With-profits payouts on the up

Thursday, April 17, 2014

If you're one of the millions of people who invest in with-profits, there was much to cheer about in the latest survey from Money Management magazine. The publication's with-profits survey found an improvement in payouts this year, with Foresters Friendly Society being one of the providers commended for its performance.

Cost of living blog nesteggThe highly respected annual survey collects data from with-profits providers, and their returns to the regulator, to analyse how the market is performing. Based on an investment of £50 a month into a with-profits policy, it found that the average return over 10 years was 2.8% annually.

Those who invested for longer saw the average annual return increase, rising to 5.7% annually over 20 years and 7.4% over 25 years, which reflects the nature of this type of long-term investment. Past performance should not be seen as a guide to future performance.

Diversified investments, less risk

From a risk and return perspective, with-profits is designed to be a halfway house between a traditional savings account and stocks and shares alone. To achieve this approach, any money you invest in a with-profits fund is spread across a variety of different assets, such as cash, fixed interest and property as well as UK and international stocks and shares.

Having this well-diversified spread of assets means with-profits is a less risky approach to investing. However, as the value of some of these assets can potentially fall, in certain circumstances you may get back less than you paid in.

But taking this extra risk can pay off. Providing you're happy to invest for at least five years, this type of investment offers more potential for growth than if you'd left your money in a savings account. For example, Money Management's survey shows returns of 1.2%, 2.4% and 3.1% for a 90-day notice savings account over 10, 20 and 25 years.

Choosing wisely

While with-profits returns were on the up, the survey also shows that it pays to select a provider carefully. For example, although the average annual return over 20 years is 5.7%, equivalent to a pot of £22,055 for an investment of £50 a month, the worst return was just 0.8% a year, giving an investor only £13,004.

To stay the right side of average, it's important to look for a provider who has a good spread of assets that are actively managed. This is the case at Foresters Friendly Society, where the with-profits fund is well diversified and closely monitored.

Money Management also found that Foresters was one of only a handful of providers open to new business , with all of these, bar one, delivering impressive performance across different time periods. 

Source: The Money Management Survey, April 2014, looked at maturity values as at 1 February 2014 for a male aged 30 paying £50 a month into a With Profits policy.  These figures are then compared with the figures from other providers to compare companies' past performance.

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