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Structured note- anybody invest in one?

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Structured note- anybody invest in one?

Old 03-04-2019, 09:20 AM
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Default Structured note- anybody invest in one?

trying to get a better understanding of these if they are tied to an index how they can be FDIC protected? They are not a glamorous investment w a promise of a huge return but seem to offer protection if after 5 years the index invested in is down rather than up. I have read as much as I can and with everything there is an opinion on both sides. Anybody have a greater insight?
Old 03-04-2019, 09:25 AM
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If you are talking about the guarantee of a percentage return type of note, then I believe the taxpayers are on the hook if it doesn't perform to the rate. I have only heard of this once, when my pops invested in one - it was a Gvt. Bond with a guarantee of percentage return. I later was told that if the bond did not perform, then the taxpayers ended up paying for the return.
Old 03-04-2019, 09:51 AM
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There are many different types of structured products, be it market linked cd’s with FDIC protection to certain limits or guaranteed principle products with a market appreciation feature. Like insurance, the fees can be high.

No one can answer your question with any specificity as there are so many derivative based products out there.
Old 03-04-2019, 01:04 PM
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A structured note is a debt instrument, it is not FDIC protected. See e.g. https://www.helpwithmybank.gov/get-a...-notes-03.html :

Answers about Structured Notes

Is money invested in a structured note with principal protection FDIC insured?

No. While portions of index-linked certificates of deposit, a type of structured investment, may be eligible for FDIC insurance coverage (see Answers about Index-linked Certificates of Deposit), structured notes with principal protection are not FDIC insured.
Notice that it mentions index-linked certificates of deposit. FDIC is Federal Deposit Insurance Corporation. Unless it's a bank deposit, it's not protecting it.
Old 03-04-2019, 01:26 PM
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My Dad had some when I liquidated his estate. As I remeber they were very thinly traded and thus big spread on the bid/ask
Old 03-04-2019, 01:36 PM
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Your counter party risk is against the issuer not the taxpayer or FDIC on any structured note I've ever seen.

Their biggest selling point is the commission, probably the highest commission payout dollar for dollar that the person trying to sell it to you can make.
Old 03-04-2019, 01:47 PM
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It's issued by usually a large bank: UBS, BofA / MER, JPM, WFC. The bank takes the funds buys a bunch of bonds they know can beat the guarantee (the same way they lend out your money that walks in the door) and then they buy a series of options on a given index and participate in the index. They get to slap FDIC on it because the underlying bonds have decent credit and they are a bank so yes it's safe in the fact that you will get some known amount back.

The options are in some type of series either part matures every month / quarter or they all end at the end of the contract (Known as point to point). The problem is that if it's monthly or quarterly they tend to have a cap on what can get un upside credit but little to no cap on the downside. If you follow the market and it makes lets say 12% in a year most of that 12% is done in 1-3 months if you are capped on the upside of those 3 months than you can't really make any money also if your not capped on the down then even in a good year your options could make little to nothing.

My professional opinion is that 95% of these are crap the options desk probably makes a nice profit on these every year. You would be better off putting 80% of your money in some type of fixed income investment like a CD and then put the rest in an index fund. Your 80% in 5 years will almost grow back to your original 100% and the 20% in the market will probably do well.
Old 03-04-2019, 02:14 PM
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Structured notes that invest in the market...I believe some are set up to give 100% back at maturity....with a potential for gain.(Yes backed by those 4 letters lol) Values prior to maturity fluctuate greatly, and not sure about any estate 'death' put.

In general the 'gotcha ya' is in the details of the correlation to the index. When you cap returns in any period you take away the bounce back that you need to make up for the down years. 1999 to 2009 was flat to down on S+P. 2008 was down 35% or so. Next year up strongly. If you can only get say 8-10% max in any one year you are setting yourself up for underperformance.
Old 03-04-2019, 02:15 PM
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Originally Posted by captpepin View Post
I...... You would be better off putting 80% of your money in some type of fixed income investment like a CD and then put the rest in an index fund. Your 80% in 5 years will almost grow back to your original 100% and the 20% in the market will probably do well.
This!
Old 03-04-2019, 02:18 PM
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If not FDIC walk away..
Old 03-04-2019, 02:22 PM
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After participating in a variable annuity 401K 30 years ago, I will never invest in anything I do not understand. I have been invested 100% in SPY stock many years with good results over the long haul.

Wife and I met with a couple of whole life agents 15 years ago. They said the average return was x%. I said x% on what amount? Neither had a clue. They include term life insurance but no idea what they charge for it.
Old 03-05-2019, 04:28 AM
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Originally Posted by Re-Bait View Post
not sure about any estate 'death' put.
That's simple, upon death you get either all your money back or the value of the security whatever is greater.

The death put is a nice little feature, as noted by one other person the stuff is not liquid and they had an issue selling out for an estate, older clients always ask, "What if I pass away" with the death put it protects the estate.

You also see death puts very often on "Brokered CD's" (CD's issued by banks that are bought at broker dealers) and many Corporate bonds.
Old 03-05-2019, 05:11 AM
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Look no further than the commissions paid on some of these products. Annuity’s pay as high as 5% for the broker. Whole life/variable life insurance commission usually is the first year premium plus reduced trailing commissions for as long as the product is in place.

im sure a structured note is comparable.
Old 03-05-2019, 05:31 AM
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Originally Posted by captpepin View Post
That's simple, upon death you get either all your money back or the value of the security whatever is greater.

The death put is a nice little feature, as noted by one other person the stuff is not liquid and they had an issue selling out for an estate, older clients always ask, "What if I pass away" with the death put it protects the estate.

You also see death puts very often on "Brokered CD's" (CD's issued by banks that are bought at broker dealers) and many Corporate bonds.
A few corps have death puts, make sure you don't pay over par though I'd say less than 5% of the market, if that.

And yes ALL cd's have a death put. However they need to be handled properly.
Old 03-05-2019, 05:34 AM
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Originally Posted by bjm9818 View Post
Look no further than the commissions paid on some of these products. Annuity’s pay as high as 5% for the broker. Whole life/variable life insurance commission usually is the first year premium plus reduced trailing commissions for as long as the product is in place.

im sure a structured note is comparable.
Actually they are completely different. Most pay far less than an annuity. And annuities have their place, they just are completely misunderstood and imo very poorly explained.

My friend said "Hey can they guarantee to turn a million into two million in 10 years??
Old 03-05-2019, 05:38 AM
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Why no I said and went on to describe how in 10 years they'd either grow the principal to 2 mill....or they'd promise to pay him $100,000 for the rest of his life. (starting at that point 10 years from now). And no explanation given regarding all gains taxable income not cap gains

In other words he was probably giving them his money for the rest of his life. AND I said they'd charge at least 3.5% annually in fees. So "How could they double the million if they were going to charge $350,000 in fees???
Old 03-05-2019, 08:10 AM
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Originally Posted by captpepin View Post
They get to slap FDIC on it because the underlying bonds have decent credit


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