Experience with Structured Notes

[beeboy]

Hi everyone. Does anyone have any insight, opinions on structured notes. I'm thinking about purchasing a few of these products - one tied to the Euro Stoxx 50 and the other to the Russell 2000 that are offered through Citibank. Thanks in advance!
-bee

 

[REWahoo]

Structured notes: a financial instrument sold rather than bought

... a real stinker of a product that at first glimpse appears to be the answer to your prayers, but really is just one more way Wall Street is going to separate you from your money. The product is the structured note and it advertises its ability to benefit from good stock market performance while simultaneously providing protection against the bad market performance. The cost for this protection is covered by modifying the benefit. It sounds good, but unfortunately, the cost of the protection usually outweighs and undermines any benefit.

https://www.investopedia.com/articles/bonds/10/structured-notes.asp

 

[gcgang]

My understanding is Structured Notes are a wonderful source of profit for the financial services industry.

 

[braumeister]

And among their other attractive aspects:

Structured Note terms are generally between 18 months and six years and it is important that you can afford to tie up your money for that period, because your principal is only protected when Structured Notes are held for their full term.

Investors assume full credit risk of the Issuer and/or the Guarantor. This means that should the Issuer and/or the Guarantor become insolvent or fail in any other way you may not receive back any of your investment monies, not even the initial investment amount as the principal protection will not apply in this situation.

 

[beeboy]

RE Wahoo, gc & braumeister - thanks so much for the insight. They definitely sound pretty scary. I'm looking to take some of the money I have in cash right now and put it to work as I'm sick of seeing the .01 return. But, so far structured products don't sound like the best place to park it.

 

[braumeister]

I'm sick of seeing the .01 return.

If that's all you want, it's easy to open an online savings account that gets 1.25% with complete safety and liquidity.

 

[VanWinkle]

If that's all you want, it's easy to open an online savings account that gets 1.25% with complete safety and liquidity.

I also stash cash in a short term investment grade bond fund. Pays about 2.25% with minimum principle risk.

VW

 

[ncbill]

i also stash cash in a short term investment grade bond fund. Pays about 2.25% with minimum principle risk.

Vw

vcsh ?

 

[beeboy]

If that's all you want, it's easy to open an online savings account that gets 1.25% with complete safety and liquidity.

I'd like a lot more than .01 or 1.25%. Although don't we all.

 

[beeboy]

I also stash cash in a short term investment grade bond fund. Pays about 2.25% with minimum principle risk.

VW

Not bad.

 

[OnTheBeach]

I have several structured notes in my portfolio. Some make sense / some don't - you need to see how they fit in your portfolio. One of my current notes is linked to the Euro Stoxx 50. 15 month term......if the Euro 50 is up - I get the greater of 24.75% or the return of the market......if the Euro 50 is flat to down 10% - I get par......if the market is down greater than 10% - there is no protection, my losses are equal to the market. In all markets, this note is better than owning the actual index.

 

[OldShooter]

... In all markets, this note is better than owning the actual index.

That appears to violate the TANSTAAFL rule. Who is your counterparty and why would they be willing to do such a deal? Are you sure you've read all the fine print?

 

[CRLLS]

I had a Structured CD once from my local bank guy. It was FDIC insured so I couldn't loose money, which was my concern for that part of my investments at the time. I read the full prospectus thoroughly and had to explain to the sales guy (a.k.a. investment person) exactly what it guaranteed and how it worked. He wasn't up to speed on it. it must have been something he was told to push.

At the time I invested, coming out of the 2008 lows, I expected it to do very well no matter what. Heck, it couldn't go much lower. And I was guaranteed not to loose a single penny. Well, some parts of it did good and others did more than equally bad leaving me with less than I had in it. Due to the FDIC, I ended up getting exactly what I had started with. I will not do this again!

 

[Curmudgeon]

I have a couple years of cash in laddered 2-year CDs. I just renewed one today at 1.8% APY. Not a bad rate, the money is guaranteed, and I can go to these if a period comes when I don't want to touch anything in the rest of my portfolio.

 

[VanWinkle]

vcsh ?

VSCSX and VFSUX are the 2 Vanguard funds I use.

VW

 

[VanWinkle]

I have a couple years of cash in laddered 2-year CDs. I just renewed one today at 1.8% APY. Not a bad rate, the money is guaranteed, and I can go to these if a period comes when I don't want to touch anything in the rest of my portfolio.

+1 A great way to guarantee principle at a decent rate.

VW

 

[DrRoy]

My understanding is Structured Notes are a wonderful source of profit for the financial services industry.

+1

 

[limeyx]

Hi everyone. Does anyone have any insight, opinions on structured notes. I'm thinking about purchasing a few of these products - one tied to the Euro Stoxx 50 and the other to the Russell 2000 that are offered through Citibank. Thanks in advance!
-bee

I had a couple about 10 years ago. Both tied to european indexes with "downside protection"

One lost money and the downside protection meant I got my capital back (so an effective loss)

One returned a decent amount but on the whole it feels to me like gambling and I don't plan to use them in future

 

[beeboy]

I have several structured notes in my portfolio. Some make sense / some don't - you need to see how they fit in your portfolio. One of my current notes is linked to the Euro Stoxx 50. 15 month term......if the Euro 50 is up - I get the greater of 24.75% or the return of the market......if the Euro 50 is flat to down 10% - I get par......if the market is down greater than 10% - there is no protection, my losses are equal to the market. In all markets, this note is better than owning the actual index.

This is actually similar to the one they are trying to sell me. Linked to Euro Stoxx, but with a 70% limit on the upside, 20% protection on the down side. So, it sounds like you are happy with it. Thanks for the advice.

 

[beeboy]

I had a couple about 10 years ago. Both tied to european indexes with "downside protection"



One lost money and the downside protection meant I got my capital back (so an effective loss)



One returned a decent amount but on the whole it feels to me like gambling and I don't plan to use them in future

Isn’t investing in the stock market a little like gambling? I hear you though, certainly not sold on them and after reading most of these comments, I certainly am not putting as much as they want me to put in them. Maybe test it out with a smaller investment.