Am I throwing good money after bad?

Q I took out an endowment plan for ?85,000 in 1991 to support a mortgage. A few years later I sold the property but was advised it may be better to continue the endowment rather than surrender it and get back much less that I invested. It would also mean that if I bought another property later on, I would not need to start a new endowment plan and could use the existing one.

A simple calculation tells me I have invested ?111.79 pounds per month for 141 months, a total of ?15,762 and the surrender value as of last week was just under ?14,000, so after almost 12 years, I have lost about 11% of the total amount invested. I'm quite disappointed by this and at ?14,000, I seem a long way from the target of ?85,000, even if there are still 13 years left to make up the difference.

Should I continue to throw good money after bad, or should I cash in and invest the ?14,000 in a better performing investment? I suppose it boils down to whether the investment has much chance of recovering before maturity in about 13 years time, but based on past performance, I am not very confident. At the same time, it seems a pity to give up on something after sticking with it for 12 years.



PL



A My standard answer is that endowment policies are a poor investment, since they have high charges and little prospect of improving for a long time. I have faced exactly the same problem and decided to stop throwing good money after bad.

I had hoped to sell my policy on the second hand endowment market, known as TEPS, but there were no buyers prepared to pay more than the surrender value which illustrates the current lack of faith in this kind of investment. If you do decide to get another mortgage, who says that an endowment policy is the best kind of repayment vehicle? There are better alternatives including individual savings accounts, which benefit from tax concessions.