Ludicrous stuff. Akin to promoting an article on alternatives to porridge and then proceeding to talk about coke and hookers.
I appreciate the inner details of the products are complex and difficult to understand, but at a 'general customer' level, I understand they are generally straight forwardThe structured products are complex and difficult to understand.
Plus your money is locked away for the entire investment period. You are likely to just get your money back, which for giving someone use of your money for 5 years, it a pretty bad return.
75-80% govies to secure 5 year capital guarantee implies 4% - 6% p.a. yield. These were available at a time. Trackers in those circumstances fulfilled a very valid market need. Psychology has a lot to do with investment and attitude to risk in particular. In those days a Tracker put only your interest at risk. To a financial purist there is no difference between risk free interest and capital but for many punters, they see their capital as hard earned and their interest as something which they could validly risk at the options tables. So there was a sort of risk reward arbitrage - the markets didn't distinguish between capital and risk free interest, the punters did.- the use government bonds to purchase a guaranteed payment in a future date. This normally equates to around 75-80% of the deposit
75-80% govies to secure 5 year capital guarantee implies 4% - 6% p.a. yield. These were available at a time.
Absolutely agree here - the fundamentals of these products have changed in the low interest rate scenariosHowever today the 5 year yield on an Irish govie is 0.13% p.a
Maybe this is the case, but I think one could contend that these types of products make derivatives available to the 'average' retail investor.Structured products are, in my experience, a mechanism for unscrupulous advisors to extract the maximum revenue possible from unsuspecting customers. Hopefully regulation kills that business.
Those who had their skin saved in 2006-2007? Were they looking for equity returns or deposit returns? What's the benchmark for these products? I would say they are competing against deposits as the low risk investor is their target market. If a low risk investor had their money on deposit in 2006-2007, they wouldn't have had any risk exposure. And would have had the opportunity to place their money in a 5 year fixed term deposit at 5% per annum soon afterwards.
What do advisors see as the advantages?
They get paid massive upfront commissions!
Hopefully regulation kills that business.
@SBarrett I agree with you completely on not trying to work out the details of something that is not your cup of tea. I am curious as to what you would recommend for a relatively conservative investor who would like to take on more risk than a deposit, but nervous about plunging into the equity market. What would you recommend for these clients - who would be attracted to the structured product type investments?
I am not doubting the fact they are heavily skewed in favour of the sellers, but I do wonder if they can serve a purpose for some clients ? I will add I do not hold any of them myselfRead Rory Gillen’s piece on structured products.
So in essence lower overall risk by taking on two different risk profiles and getting the right balance via that means.My own view is that you put a portion of your money into equities and keep the majority in cash.
I am not doubting the fact they are heavily skewed in favour of the sellers, but I do wonder if they can serve a purpose for some clients ? I will add I do not hold any of them myself
So in essence lower overall risk by taking on two different risk profiles and getting the right balance via that means.
@SBarrett I agree with you completely on not trying to work out the details of something that is not your cup of tea. I am curious as to what you would recommend for a relatively conservative investor who would like to take on more risk than a deposit, but nervous about plunging into the equity market. What would you recommend for these clients - who would be attracted to the structured product type investments?
My own view is that you put a portion of your money into equities and keep the majority in cash.
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