Principal Protected Investors Trust S&P 500 review
Investors Trust is a fast-growing investment provider based in Puerto Rico, Cayman Islands, Malaysia, and beyond. They also have administration offices in the UAE and Uruguay.
With $3.2billion in assets under management and clients in over a hundred countries, they are increasingly becoming a bigger player in the offshore investing landscape. Most of the clients are expats or locals in Latin American, Africa and Asia.
What are the basics associated with the Principal Protected S&P500 plan?
The basic elements of the plans are below:
The plan is available in USD only. With a minimum starting point of $200 a month, this option can be taken out over 10, 15, or 20 years.
The 10-year option only has a 100% guarantee, meaning that you don't have much downside protection.
The 15 and 20-year accounts have 140% and 160% protection respectively, meaning that you can make some money, even if the market has fallen.
There is a $10 a month fixed-charge alongside a 0.125% monthly fee applied. The admin fee is 2% for the 10-year account, 1.7% for the 15-year, and 1.1% for the 20-year.
There are two index series options. The S&P500 and MSCI EAFE. The S&P500 is one of the major indexes in the United States, focusing on 500 of the leading firms, including Apple, Microsoft, etc.
Over most 30-year periods, the S&P500 index has averaged about 10% per year, even if some periods are better. In comparison, MSCI EAFE is an index focusing on 21 developed market indexes, excluding the United States and Canada. This includes stock markets in Japan, the UK, Germany, and France. In the last decade, the MSCI EAFE index has underperformed the S&P500, but this won't last forever.
What are the positives associated with these plans?
The main positives are
The accounts are unique in the space, in that they offer downside protection, which you usually can only get access to with a lump sum account.
The evidence out there suggests that investors give up on markets when things become volatile. A Schwab study found that 35% of their do-it-yourself (DIY) clients panic sold during the 2020 Covid-related falls. The sample size was huge, given the size of the company.
Furthermore, a Vanguard study showed that net inflows into the funds were highest during 1999-2000, after eighteen years of increases for the market, but net sales (outflows) were during the Global Financial Crisis of 2008-2009. Investors are emotional so are less likely to give up paying into an account with downside protection, when the markets are falling.
There are no additional card fees, charged by Investors Trust, for Visa and MasterCard. Chinese-based investors, including expats living in China, can use UnionPay. The cost is only 1% because Investors Trust are absorbing some of the associated fees. This is currently unique in the international space.
The MSCI EAFE index looks undervalued at this conjure, and the S&P500 has been one of the best performing indexes in the world.. The MSCI USA Index (which is correlated to the S&P500) looks more overvalued on a price:earnings basis. Or to put it in simple terms, you are currently paying more for US stocks than international ones, for each USD, Pound or Euro in revenues. That doesn't mean that you will make more money in the EAFE account compared to the S&P500, but it does increase the likelihood in the next decade.
What are the negatives?
The biggest negatives are
Investors Trust's sister product, the Evolution, is cheaper and has more fund choices. This includes funds, and ETFs, in commodities, mining, government and corporate bonds etc. However, it doesn't have downside protection, which appeals to more conservative investors.
You do need to pay in every time until the end to have the insurance of the downside-protection kick in. If you stop paying in for more than 90 days after the due date of the next payment, you lose that benefit.
Unlike Evolution, these plans are only available in USD - not Euros or Pounds.
The 10-year option isn't worth it, considering the protection is very small. The 15-year account is a good mid-point option for many investors, being shorter-term than 20-years but offering more protection than the 10-year
If all investors behaved rationally during market falls, fewer people would need downside-protected solutions. One of the main benefits of the plan is it indirectly stops investors doing something silly. In other words, people keep paying in to avoid losing access to the downside protection.
The downside-protection is linked to structured notes which might fail, but it is unlikely given the names backing up the plan, which are A-rated banks.
Is now a good time to invest in the S&P500 and other stock markets?
This is a question which has been asked every year since stock markets were invented. The evidence suggests that nobody can find the right moment to put money in the markets - also known as market timing. Markets tend to rise, and fall, during unexpected moments as well. Few expected the global stock markets to do so well after Brexit and Trump's election in 2016, or after the disputed election in 2020. Therefore, it is better to invest every month, or as a lump sum, as soon as you have the money.
Is investing in this structure safe?
Yes, Investors Trust have a segregated accounts system, which means that your money is not at risk if the company goes bust. Considering how much AUM they have, in addition to the recent fast growth, it is exceptionally unlikely that such a system will be needed in the first place.
Is the Cayman Islands a good jurisdiction to hold offshore plans?
There is a lot of misleading things online about this issue. Firstly, the plans are in Malaysia (Labuan), Puerto Rico and Cayman. The laws in Puerto Rico go all the way up to federal level. So, you don't need to buy a Cayman plan, and can elect for Labuan or Puerto Rico instead. However, Cayman is the fifth biggest global financial centre on some measures, so you shouldn't be worried about it. What is more, Investors Trust utilise onshore banking in the UK and US. The bigger question is whether you need the downside-protection in the first place, rather than equivalent cheaper plans.
What happens if I lose contact with my advisor?
If you lose contact with your advisor, or aren't happy with the service, you can approach countless other financial companies who can take over the running of the account.
We have helped numerous clients, who are using countless expat-focused providers, get better returns or service. If you have had a bad experience with an advisory company, this isn't the fault of the investment provider.
Are there tax benefits of investing in these kinds of policies?
Yes, but it depends on where you are from, and where you live. In general, it does make sense for non-American expats to invest offshore, rather than in a home country or new country of residence. Investing offshore tends to be more portable as well.
Have people tended to make good money in the plan?
Yes, assuming they have carried on investing on a regular basis, and haven't stopped in the middle. The MSCI plan has had average returns, at best, but that is because the index itself has done badly.
This can be an excellent solution for people in very specific situations - especially those investors who are overly worried about the volatility in the markets and are likely to panic sell. It can also be good for diversification. In other words, some investors might want to put a percentage of their funds in such a solution. For some other investors, however, alternative solutions offer better value, including other options on Investors Trust itself.
If you haven't spoken with us before or would like to just get a second opinion on your current investments contact us - firstname.lastname@example.org - today for a free initial consultation.