Funds that promise protection can exact higher fee. Financial firms had launched some safe investments for investors, but there are some pitfalls in those products. In this article, the writer reported that “some of the products have high fees and employ investment strategies that can pose complex risks. Funds that guarantee principal protection may actually morph into high-priced bond funds in disguise.” The markets swing wildly, investors last year withdrew their money from mutual fund and invested them into Government bonds. It makes the short-term Treasury yields become very low.
There are some financial service firms came out with more safety-oriented products to the market. Principal protected funds will make sure that the principal of the investors will not loss. But this kind of funds is more expensive and when the stock market condition is worse, it will transfer the whole money to bonds which prevent investors from earning some profit when the stock market rebound.
When it comes to choosing an investment product, there are some pros and cons we need to pay attention. There are different kinds of products such as principal-protected funds, managed-payout funds and variable annuities.
The disadvantage of principal-protected funds is that the fees of the fund can be high and some funds may move a large potion of money to bonds, decreasing potential stock return. The disadvantage of managed-payout funds is that some funds have been returning shareholders’ original investment rather than generating income, and some payouts have dropped due to poor fund performance. The disadvantage of variable annuities is that many insurers are now raising fees for various features; some are also trimming back guaranteed withdrawal rates and other benefits.
Analysis
Recently, the economic condition is not very well, a lot of investors lost they money in stock market and bond market. They are afraid of losing more money of their saving or retirement...