Principal Protected Note (PPN) Thoughts?
I have been reading recently about PPNs, and I was wondering if folks here have used these in their retirement portfolios. PPNs are sort of an individual bond that effectively pays a rate based on an index (or combination of indexes) growth over a fixed period. The index can be US or foreign stock indexes, currencies, commodities, etc.
The interesting thing is that you can get a PPN that, for example, pays 115% of the change in market indexes over a 4 or 5 year period with no real risk to your investment. This seems to have the benefits of a low (i.e. zero!) expense ratio index fund, but with no risk to your principal and even better returns. The only downside would be that your money is pretty much locked into this PPN until maturity. This seems OK though, when most would say that the stock portion of your retirement investments are for the long term anyway.
Am I missing something about these that make them too good to be true?