While the global stock markets continue their delicate recovery path, investors are still wondering if it is too late or even too early to join the party.

In the past 12 months, we have seen many funds nearly double in value. BWD Micro Capital Growth has grown by 98 per cent, Framlington Japan by 88 per cent, and Invesco Perpetual UK Aggressive Growth by 86 per cent.

While these returns have been great for brave investors who took the fortuitous leap a year ago, many existing investors were sitting on large losses at that time and would have avoided risking further capital. In suffering a loss of 50 per cent of their capital, investors need to achieve 100 per cent growth on their remaining sum just to get back the money they started with.

It is not surprising that many investors are very cautious at the moment and, although tempted by the recovering growth potential of stock market-related investments, they are looking for words of comfort, such as "capital protected" or even "guaranteed".

The normal cost for this peace of mind is the lack of growth potential, but it is now possible to have both.

Even National Savings has got in on the act by offering its Guaranteed Equity Bond. This five-year bond guarantees that you will not lose a penny of your original capital when it matures in November 2008, but you can enjoy 95 per cent of the growth of the FTSE-100 Index in this period with no upper limit. The minimum investment is only £2,000, but as it cannot be encashed for five years and does not produce an income, you should only invest capital that you know you will not need to have access to during this period.

An advantage of having the capital locked away in this manner is that you will only have to pay tax in the year that it matures. This can be useful for someone who is a higher rate taxpayer now but will revert to a lower rate in five years time due to, say, retirement. In any event, tax is only payable at the savings rate, which is currently at 20 per cent for basic rate taxpayers.

In the past ten years, the FTSE 100 Index has produced its best five-year period return of 113 per cent. Its worst period showed a loss of 36 per cent, but with bonds of this nature, an investor would not lose a penny due to the underlying capital guarantee.

The Zurich Guaranteed Account is a similar product, but with a couple of extra features making it slightly more appealing.

This is a bank deposit account, again with a fixed term being five-and-a-half years and 100 per cent capital guarantee, but in addition providing the investor with 100 per cent of the growth of the FTSE 100 Index compared with 95 per cent from the National Savings Guaranteed Equity Bond.

Both plans have the benefit of no initial or annual charges, but only the Zurich plan has no minimum or maximum age limit. A unique feature of the Zurich plan is that if the FTSE 100 Index has risen by 30 per cent or more by the end of the three-year term, the plan terminates and the investor receives the original capital back, plus the 30 per cent growth.

It is worth pointing out that the FTSE 100 Index has already grown by more than 30 per cent this year since its low point back in March.

The current issue of the National Savings Bond is Issue 6, and is available until November 24 or earlier if fully subscribed. The plan from Zurich is the Zurich Guaranteed Account Issue 5, which opens on November 10 and closes on December 15. The previous tranches of this plan from Zurich raised more than £200m and this final tranche for 2003 is limited to £35m and will be issued on a first come, first served basis. This plan can also be used for charities, clubs and parish councils, as well as for trustees and corporate investors.

Given the protection that is in place with both of these plans and the upside growth potential, it is inevitable that we will be seeing more products of this nature in the near future as they certainly seem to appeal to a wide range of investors, allowing them to effectively have their cake and eat it in terms of risk and reward.

* Nigel Bourke is the owner of Stockton's Nigel Bourke & Co. He can be contacted on (01642) 670307.

- Nigel Bourke is proprietor of Nigel Bourke and Co, a company regulated by the Financial Services Authority. He can be contacted at ifa@nigelbourke.co.uk or on (01642) 670307.

Published: 04/11/2003