"Guaranteed Return" Investments

In the last two weeks, we have observed notable markets corrections, due to the "potential" economical effects of the CoVid19. Investors are fearing drops in revenues, which will obviously affect profit margins and dividends therefore they kept on selling their equities and moved into less "risky" assets (bonds, gold, etc). Oil also took a massive hit due to a decrease in demand (people are not traveling much these days) but also political disagreement between two major OPEC players (Russia and Saudi Arabia).

In the light of these events, I came across a LinkedIn post from a professional operating in our industry (wealth & investment advise) in UAE, offering a product which would "guarantee" a 24% return over a two years period.

From the very early days in my role, clients always asked me what can I guarantee to them as a return of their investments and my answer has always been the same; I can guarantee I'll put together for you a portfolio that will not be paying myself or my company any commissions (cost efficient and keeps me unbiased), that is in line with your time frames and risk profile, that I'll constantly monitor it and update you if any actions are needed (rebalance, adjust if your risk profile or personal circumstances have changed, etc.), based on fundamentals and not sentiment and I will do all of that to the best of my ability and knowledge.

From the accumulated years of experience and knowledge, I have learned that any investment has a potential benefit and a potential risk and to make it simple to follow, I'll list them all below:

Listed Equities (stocks and share) - potential capital appreciation / depreciation and potential dividend payment based on profitability. Potential full loss in case of bankruptcy.

Private Equity - potential massive capital appreciation (if the company goes listed or you invested in very early stages), massive depreciation (if you can find a buyer) or total loss of the company shuts down. NOT FOR RETAILS INVESTORS.

Corporate or Government Bonds (also known as treasury notes in US or guilts in the UK, obligations in other parts of the world) - potential capital appreciation / depreciation (depending on the purchasing price vs maturity price and if traded out before maturity date or constant price movement on a perpetual bond). Potential income generator through fixed coupons. Potential loss of income if failed to pay its coupons and potential full loss of capital in case of bankruptcy (default). In June 2015 Greece defaulted a payment of $1,7 billion to the IMF as a more recent example.

Commodities - potential capital appreciation / depreciation based on demand vs offer

Mutual Funds & ETFs - potential capital appreciation / depreciation based on the value of the assets held within the fund. Potential fixed % income paying based on the NAV (in some). Lack of liquidity in property funds (Brandeaux Student Accommodation, Mansion Student Accommodation as examples), hedge funds or any other non daily traded funds. Potential full loss if invested into an unregulated or poorly regulated fund, promoted purely for commission reasons by the advisers (Strategic Growth, Caldora, Premier New Earth, LM Investment Management as examples).

Structured Notes - potential capital appreciation / depreciation if traded (sold) before maturity and/or the agreed observed assets are below the minimum levels at maturity or in some cases, during the note set period. Potential income generator, if the agreed observed assets are performing within the set rules. Full loss of capital if the issuer goes bankrupt (I met in my career some Lehman Brothers Structured Notes holders, when the notes were not so widely sold as they are today). They lack a solid secondary market which might create liquidity risk.

Properties - potential capital appreciation / depreciation based on demand vs offer and lending conditions (interest rates are a massive drive of liquidity and price in the property markets) and potential rental income IF occupied by a paying tenant (some went through the experience of having non paying tenants for a considerable amount of time). If someone guarantees you an income form property, your promised income has been paid by YOU in the purchasing price of the property (hidden of course) and returned over a period of time. More on investment properties you can find here.

Private Lending - potential income through interest (usually higher than the one a bank would charge) and potential capital appreciation (if in a roll over type of interest payment). Potential full/partial loss if the debt can not be repaid as agreed. I know that these days, people are being offered "private equity" solutions while they actually are nothing but private landing.

Cash - Cash is king they say but it is usually eroded by inflation. Potential capital appreciation if in a fixed deposit with a bank, usually paying an interest rate below inflation rate (and if above, do wonder why as not many Lebanese bank deposit deponents did). Potential losses of large portions of capital if the bank goes bankrupt (the Cypriot bank crises as a recent example). Under the EU legislation, deposits are assured up to EUR 100,000. For anything above that, you would need to arrange insurance (comes with a cost). Keeping it under the mattress, also has the risk of fire, flooding or robbery plus, in some countries, large amounts of cash can easily bring a money laundering investigation upon you.

Other - I came across FX schemes, container investment schemes, paintings schemes, agroponic schemes (where you give money to a trader, buy the container, a painting or an A frame, they manage it for you i.e. trade on your behalf, lease it, put it in museums or grow salad on and they return a percentage of your investment, monthly, quarterly or annually). Most of such investment schemes, are nothing but a ponzi and they are targeting people with low or no knowledge in investments, by promising very high returns. Highly unadvisable from a risk and liquidity perspective.

With all of the above in mind, I will let you judge which investment can actually bring you any guaranteed returns. I have deliberately used a particular lead picture for this article, to enforce further more, how do I feel about people promoting "guaranteed returns"; in my view, they are nothing but a bad joke. In investments, we should always have a risk vs reward approach and if we ever forget the word risk, then we should also start believing in unicorns.

Since this "amazing investment" offering was posted on LinkedIn (the 24% "guaranteed" in 2 years one), I have commented on the post (in a polite and professional way, saying that in investments nothing is guaranteed), I had my comment removed by the author and now the whole post has been removed. That just makes me wonder how regulated and "guaranteed'" this investment actually is.

Always keen to hear your views and comments. Good luck investing and stay safe while doing it!