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Structured Note- magical solution to invest in these crazy times?
Posted on 9/21/22 at 7:50 pm
Posted on 9/21/22 at 7:50 pm
If someone offered you a structured note that will pay 9.25% with parameters of 20% up and 20% down, does it sound good? So, if the S&P stays within that 20% parameter at the end of 12 months you get 9.25. If it falls below that 20% parameter like the S&P 500 falls to 30% - you lose 10% of your principal at the end of 12 months. Would you take this deal? If you invested 500,000 - you will get paid 45,000 plus if stays within the 20% parameter, but at the end of 12 months if the S&P 500 is below 20% you lose principal, like if it falls by 30%, you will lose 10% x 500,000 which is 50,000. Would you take this deal betting that the S&P 500 12 months from now will not be more than 20% down considering it is already down by almost 20% for the year already. The S&P is at 3789 today, it would have to fall to 3031 for you to lose principal. In January it was at 4796.
This post was edited on 9/21/22 at 9:14 pm
4
Posted on 9/21/22 at 8:47 pm to davidsheroes
Considering the same structured notes. Trying to figure it all out.
Posted on 9/21/22 at 8:58 pm to JakeRStephenes
These structured notes are offered by many of the largest banks in the world. Approximately 3 trillion dollars are in Structured notes offered by most major banks participating in their issuance, including Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America, Citi among others.
A structured note with principal protection is a structured investment product that combines a bond with a derivative component and that offers a full or partial return of principal at maturity. Structured products, in general, do not represent ownership of any portfolio of assets, but rather are promises to pay made by the product issuers.
Investment banks advertise structured notes as the ideal vehicle to help you benefit from excellent stock market performance while simultaneously protecting you from bad market performance.
A structured note with principal protection is a structured investment product that combines a bond with a derivative component and that offers a full or partial return of principal at maturity. Structured products, in general, do not represent ownership of any portfolio of assets, but rather are promises to pay made by the product issuers.
Investment banks advertise structured notes as the ideal vehicle to help you benefit from excellent stock market performance while simultaneously protecting you from bad market performance.
Posted on 9/21/22 at 9:13 pm to davidsheroes
Structured Note- magical solution to invest in these crazy times
Posted on 9/21/22 at 9:59 pm to davidsheroes
Since you don't cover fees im sure they are large.
So for the majority of people the answer would be no
So for the majority of people the answer would be no
Posted on 9/22/22 at 5:54 am to UltimaParadox
I had structured notes last year with 35 and 40 percent barriers. Got paid interest at 10-13 percent until those barriers were broken. At that point I got either paid out in cash at the diminished cash value or owned the stock directly at the new diminished value. So I’d say I lost about 20 percent fyi.
It’s not magic you can still lose and a 20 percent drop can definitely happen from here. I had 30 and 40 percent barriers that I thought was safe.
That said I do like the notes but it is not a cure all in bad or crazy markets
Not all of my barriers were breached and I have been doing this for a couple years so I have collected 10-13 percent dividends that offset some of the losses which is why I’m only down 20 percent so it did offer some protection
It’s not magic you can still lose and a 20 percent drop can definitely happen from here. I had 30 and 40 percent barriers that I thought was safe.
That said I do like the notes but it is not a cure all in bad or crazy markets
Not all of my barriers were breached and I have been doing this for a couple years so I have collected 10-13 percent dividends that offset some of the losses which is why I’m only down 20 percent so it did offer some protection
This post was edited on 9/22/22 at 6:00 am
Posted on 9/22/22 at 6:45 am to UltimaParadox
quote:
Since you don't cover fees im sure they are large.
You mean the Vig
Posted on 9/22/22 at 6:55 am to davidsheroes
Have done something similar within an IRA I carved out of my 401k. Because the contract is with an insurance company, they call it an annuity, but same concept.The idea is that you get some of the upside of equities while hedging the risk. You do have credit risk I suppose. And as for fees, there are none. The company is betting that it can make better use of the money.
Posted on 9/22/22 at 8:44 am to Pierre
quote:
It’s not magic you can still lose and a 20 percent drop can definitely happen from here. I had 30 and 40 percent barriers that I thought was safe.
People run into the same mistake with the wheel strategy for options. You can't lose until you lose.
Posted on 9/22/22 at 10:36 am to UltimaParadox
quote:
Since you don't cover fees im sure they are large.
So for the majority of people the answer would be no
Typically the fee is imbedded in the SN coupon. For example; If the coupon is 12%....13% without fee. There's no explicit fee. If you have the knowledge to construct a structured note yourself, then go for it. The average investor has no clue.
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