There are still lots of endowments coming up to maturity and plenty more to come over the next few years. The late ’80’s and early ’90’s were a time when endowments were a favoured option by many investors. With their 25 year terms due for maturity now or over the coming years it is a poignant time to look at why so many investors face disappointing returns.
Charges – Endowments have been well publicised over the years for charging high up front fees as well as generous ongoing fees that leave the value of the investment struggling to make up the returns required.
Fund choice – endowments, like many insurance company products in my view, offer a significant lack of fund choice. The more funds you have to choose from, the better your chances of tailoring an investment strategy that is suited to your needs.
Investment management – the failure to actively manage the investments held within the endowment, or receive advice on how best to manage the endowment as a plan within the overall context of an investment strategy most likely has been a significant factor in achieving disappointing returns over a very long time period.
Essentially, these are the three pillars of investing. make sure you pay fair and reasonable charges for your investments. Make sure you have a wide choice from which to formulate an ideal investment strategy. Then make sure you keep on top of it and manage it over time.
So for me, the reason why so many endowments fail to deliver good investment returns is not because they are merely endowments and that’s what they do, but in fat because they fail to meet the basic criteria of what constitutes a good investment and strategy.