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MONEY COMMENT
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There's no question that personal finance is a complicated business. Most of us go through roughly the same cycle of: In fact, the older we get, the more responsibility we have and the more difficult our task becomes! Although it's not possible for us to know everything about personal finance (and it wouldn't be Foolish to claim to), one of the smartest things we can do is learn from each other's mistakes. Here are five financial products that Fools should never touch with the proverbial bargepole. 1. Extended Warranties Learn more from Extended Warranties Under Investigation and Just Say No To Extended Warranties. 2. Payment Protection Insurance (PPI) Read more in The Perils Of Payment Protection Insurance. 3. Mortgage Endowments Learn more in Ditching Dodgy Endowments, How To Survive Battered Bonuses and Tackling Failing Endowments. 4. Guaranteed Equity Bonds Read more in Beware Of Jargon and Hidden Costs Of 'Protected' Stock Market Growth. 5. Anything We Don't Shop Around For Read how to shop around and save in Mortgage Disloyalty Pays Handsomely, Top Ten Loan Tips, Five Card Tricks and Slash Your Household Bills. Beef up your financial proficiency by reading A Plain English Guide To Investing, How To Complain...And Win. More: Check out our special offer on the Fool's Third UK Investment Guide.
These are so bad that the normally sluggish Department of Trade and Industry has come to life and asked the Competition Commission to investigate their sale! Warranties are over-priced, under-used and pushed using high-pressure sales techniques. The only time we should ever take this protection is as a freebie (for example, John Lewis offers free five-year warranties on various electrical goods).
We're offered these insurance policies (covering accident, sickness and unemployment) when arranging our mortgages, loans and credit and store cards. It is shockingly over-priced and frequently sold using underhand sales tactics. Also, these policies are packed with exclusions, small print and jargon. I worked in this industry for over ten years and yet never bought a PPI policy - I'd urge you to do the same!
Until fairly recently, most of us used endowment policies to repay our mortgages. Thanks to high investment returns from the mid-1970s onwards, these savings plans easily paid off our housing debts, usually with tidy lump sums left over. However, in recent years, falling investment returns have exposed the inflexibility and ridiculously high charges and commissions within these plans. Regrettably, we still own 11m policies but the good news is that sales are now drying up – good riddance! If you're considering buying an endowment, go home, put your head in a vice and tighten it until you change your mind.
These are lump-sum investments that give us some exposure to stock-market returns, yet generally offer guarantees that we'll get our money back if the markets fall. However, they are overly complicated, difficult to understand and evaluate, and often include surprisingly high commissions and hidden charges. They are promoted as being halfway between a deposit account and a stock-market investment, but include many of the worst elements of both. Give these hybrid products a miss and find yourself a cheaper, simpler investment elsewhere.
Imagine we're blindfolded, marched into various clothing outlets and made to buy random items. We may get lucky and unwittingly pick something in our sizes, only to find out that it's a bra (men) or a jockstrap (women)! However, if we just idly rely on our banks to satisfy our financial needs, we're going to end up feeling equally silly. It's been a long time since banks cared about loyal customers so whatever we're buying, we shop around. Otherwise, we're going to get robbed blind, plain and simple.