Premium Bonds

[Ric.ror]

So what's this in the budget about increasing the prizes

[royfromaus]

I lost nothing Mikey, the envelopes were flying through the door.

Why are you obsessed with inflation?

[mikey4444]

Equating concern for inflation with being obsessed ! I have heard it all now. Inflation eats into people savings, even when it is low, as it is at the moment. Simples !

[LazyGun]

It does indeed Mikey - but calling an investment/savings vehicle high risk simply because what is at risk is the amount that might be eroded through inflation at a time of historically low and stable inflation rate is hyperbolic and unnecessary.

Assuming a rate of inflation of around an average 2% for the last decade or so ( excluding the last few years) on a £30,000 saving means you are risking £600 a year - That is not high risk.

[mikey4444]

I think we are meeting in the middle here LG ! No, perhaps not high risk, but there are people on AB that think that Premiums Bonds are risk-free, which of course is not true. And that is the point that I have been trying to make. Premium Bonds suit some people and not others. They are not one size fits all. Horses for courses, as in all walks of life LG !

[royfromaus]

I cannot grasp why you call premium bonds 'high risk' your capital is safe. Unlike shares, gold, housing stock, etc. Even putting it in the bank was risky.

I made the right decision, simples!


Here you say they are not an investment'

'The trouble with Premium Bonds is this widely-held view that they are a "risk-free" investment. Wrong on both accounts...not an investment and not risk-free.'


Here you refer to them as an investment.

'My point is that Premium Bonds have a place in some portfolios, but they are still a highly risky investment,'



?

[Sqad]

,\\\ but there are people on AB that think that Premiums Bonds are risk-free, \\\

The majority of people consider the term "risk free" to mean that the original investment is safe......you get it back. Nothing more complex than that.

[royfromaus]

Exactly, Sqad.

[mikey4444]

Sqad...then they are clearly mistaken for not taking into account the effects of inflation. If we assume that inflation is 2% pa, and you keep your £100 Bond for 10 years, its real worth will only be approx. £81. This is a very simple concept and I am genuinely puzzled why so many people fail to grasp it.

[mikey4444]

royfromaus...I have made it clear on here this morning, ad nasuem, that Bonds can be part of some peoples portfolios. If you don't win, inflation reduces the original lump sums purchasing power. You have been lucky and won some money, but it isn't guaranteed. If you hadn't, then your capital has been "safe" I simply can't understand why this very basic concept isn't understood.

If you don't believe me, consult what Martin Lewis has to say on the subject.

[mikey4444]

Insert "not" in between has and been.

[royfromaus]

If you don't win, inflation reduces the original lump sums purchasing power.


Well that is simply not true. It would all depend on what you are purchasing.
a 40inch all singing all dancing flat screen television would have cost about £1500 ten years ago. Today that same TV (with even better features would cost you around £600)

Sometimes inflation has no relevance at all.

[mikey4444]

royfromaus et al...I give up ! Martin and I are both wrong it would seem.

[factor-fiction]

I partly disagree, mikey4444- I think what Martin Lewis says is correct. It is true that some people will lose more (owing to inflation/lost interest) than they win in prizes, and a smaller number some will win more- often substantially more- than they've invested.

[mikey4444]

But an even bigger number of Bond holders never win any prizes at all FF.