Yahoo Finance ‘I’ve seen adverts offering 'safe' 15pc returns – should I invest?’
I’ve recently been online trying to figure out which investments offer the highest yield over 10 years, ideally with guaranteed returns. There are websites that state fixed-rate investments will not yield any more than 5pc if you are lucky, but I’ve found investment companies offering as much as 15pc interest. Do these involve risk?
JL, via email
The only place you can put your cash that offers a guaranteed return is a savings account, where the maximum rate currently available is around 2.5pc.
Beyond that, every other option, whether a stock, bond, investment fund or property investment scheme, involves risk.
The old adage of “if it looks to good to be true, it probably is” applies nowhere better than investing.
The FTSE 100 index currently yields less than 4pc, while top income and bond funds at major investment firms struggle to deliver a 5pc income a year. There are some alternative investment funds that can offer up to around 7pc, but these are rare and generally not intended to form the core of a portfolio.
However there are a large number of smaller, unregulated companies out there claiming to offer annual returns of 8pc, 10pc or more. Some of these will be legitimate but involve significant risk; others will have good intentions but be badly executed; and the worst are deliberately misleading, or even out-and-out scams.
All need to be approached with extreme caution. If something goes wrong with an unregulated investment the City watchdog and Financial Ombudsman can’t help you.
For instance, Harewood Associates, the company you mentioned, offers a three year "mini-bond" claiming to return 12pc a year if you lock your money away.
However, there are a number of red flags. It describes the returns as “fixed” and “safe”, and the risk of losses is not mentioned anywhere.
The website doesn’t explain what the company does in any detail, other than that "your funds will be used to finance the purchase and development of highly profitable, exclusive housing projects".
It also makes the unsubstantiated claim that the investment growth it offers has only ever previously been available to large financial institutions.
The implication is that there is no way investors could lose money, but as with any property investment, that is not true.
Harewood Associates and its directors are not Financial Conduct Authority authorised, nor are investments in the firm covered by the Financial Services Compensation Scheme. This is typical for a mini-bond investment, although some use FCA regulated firms to handle their marketing.
If Harewood were to go bust, you would have to hope that its claim to secure your assets against luxury properties stands up, that you are first in line, that those assets have any value, and that auditor or legal fees don't swallow anything left.
Harewood did not respond to repeated requests for comment, and a representative hung up the phone when questioned by Telegraph Money.
In general, warning signs to watch out for with investment firms include:
Promises of guaranteed or risk-free returns.
Promises of investment income significantly higher than the market.
Use of language that implies the company is the only one able to achieve such returns, or that it has come across a brand new way of investing.
An unclear or ambiguous description of exactly what your money will be used for, and where the returns are coming from.
A history of missing interest payments.
Claims it is regulated, but the firm can’t be found on the FCA’s register.
You should examine the company on the government’s Companies House website. Have a look at the listed directors, and what other businesses they have been involved with. Previous failed ventures are another warning sign. Assets and debts that don't match up with the company's claimed activities can also be a bad sign.
Read here for our guide to achieving a 5pc investment income, here for our list of recommended funds, and here for some alternative income investments to consider.
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