Frank Smith: Good morning Mr Gibbs, you wanted to see me.
Mr Gibbs: Yes, come in and take a seat. I would like to diversify my investments and I'd like you to give me your opinion on some possible options.
Frank: Of course, what kind of investments are you thinking of?
Mr Gibbs: Well, ideally I want something with a high yield and a low risk.
Frank: That may be asking a bit much, but there are a few possibilities you may want to consider.
Mr Gibbs: Ok, so what do you suggest.
Frank: You could invest in a tracker, or index fund where your investment is split between a certain number of FTSE 100 companies. Your holding would be directly linked to the stock exchange, so growth on the stock market would mean a return for you.
Mr Gibbs: And what kind of return could I expect?
Frank: Based on previous years, I would expect something along the lines of 5 to 8%.
Mr Gibbs: I was hoping for a higher return than that.
Frank: Ok, but anything above that will carry a lot of risk.
Mr Gibbs: How much risk?
Frank: It is almost impossible to accurately forecast the market at the moment, so investing in one company, even a blue-chip is not a good idea as the share price could unexpectedly plummet.
Mr Gibbs: But, that means it could also rocket, yes?
Frank: In theory yes, but it is 50/50 - so I wouldn't recommend it.
Mr Gibbs: Ok so, what other options do I have?
Frank: You could invest in a property fund, these have proved resistant to the financial crisis and from long-term perspective, could offer a good return.
Mr Gibbs: I though the property market was in a slump?
Frank: That's why I said from a long-term perspective. There is bound to be a boom in the market again, we just don't know when.
Mr Gibbs: Right, that is something to think about but any ideas for short-term gains.
Frank: The most popular option is bonds with a one or two year maturity.
Mr Gibbs: Ok, and they are safe.
Frank: In general, bonds are less volatile than other investments such as shares. However, losses can still happen as a company or government may default on their obligations to bond holders.
Mr Gibbs: So they are not guaranteed?
Frank: No, unfortunately there is no such thing as a guaranteed investment. However, commodities have generally offered a good return on an investment.
Mr Gibbs: You mean like gold and such like.
Frank: Yes, but not only. Any type of raw materials from gold to rice can be traded. I don't really have too much information on it, but if you are interested I will contact a broker.
Mr Gibbs: That sounds good.
Frank: There is another option- it is a little more risky but potentially offers higher returns.
Mr Gibbs: Tell me more.
Frank: Well, it's a new option - peer loans.
Mr Gibbs: What are they?
Frank: Ok, so you act as a backer for a startup company, a new play or in fact anything which requires backing. At the time of agreeing to fund this, you set your conditions including repayment terms and interest rate.
Mr Gibbs: You mean like that program 'Shark Tank'?
Frank: Exactly, but it doesn't have to be on such a large scale. You can invest a few hundred in several companies of tens or thousands in one.
Mr Gibbs: I like that idea.
Frank: I don't have the details on me, but when I get back to my desk I will send you some information on peer-funding and the risks involved.
Mr Gibbs: Great. Now coming back to the property fund you mentioned earlier.
Mr Gibbs: What is the advantage of the fund over just buying property?
Frank: Well, firstly it is a little safer as the risk is spread over the portfolio instead of in one building. But the main advantage is that you do not need to invest so much money as if you bought property on your own.
Mr Gibbs: So, in my position the only benefit is that it may be a bit safer.
Mr Gibbs: I think given the choice I'd prefer to invest in my own property rather than a fund. What about buying up the property near the factory? Eventually we will move production and surely then the nearby houses will be worth a lot more money?
Frank: Yes, that is a great idea.