Forget big risk-free returns, investors warned
Consumers have been warned to be realistic about the returns they could expect on investments in the current market.
Howard Davies, chairman of the British Financial Services Authority, urged people not to be taken in by salesmen’s offers of guaranteed double digit returns on investments such as a with-profit bonds and hedge funds.
He told the CBI southern region annual dinner last night: ‘‘The income projections sound attractive, but the risks on the capital side are not so prominent in the sales pitch.
‘‘In current markets there is no such thing as a double digit risk-free return. Yet it is surprising how many people seem to forget that.
‘‘Just now there are many financial engineers around who are keen to pretend that they can beat the market and provide boom-time returns in a downturn. It just isn’t possible without taking big risks.’’
He said businesses and individuals needed to recognise that the economic world was changing and low inflation was likely to persist.
He added people also needed to be cautious when borrowing money, and he added that the FSA was concerned by the level of house prices in London and the South East, as well as the rising amount people were borrowing as a multiple of their salary.
He added that it was important for companies to be realistic, and not to base plans for the future on expectations of double digit revenue growth.
But overall he said he was not pessimistic about the outlook for the economy.
He said: ‘‘The British economy is in much better shape than it was in the early 1990s and our banking sector is strong and well capitalised - an important national asset in difficult times.
‘‘So I forecast a challenging 12 months ahead, but not worse than that.’’
