A Closer Look At Principal Protected Notes - Part 3

As I touched on briefly in part one of this series on principal protected notes, many brokers are comparing them to equity-indexed annuities. Equity-indexed annuities, which are annuities that earn interest because they are linked to a stock or other equity index. While these annuities have their own set of problems that we won’t get into here, they at least offer investors a measure of exposure to the broader stock market, which is a prudent investment for the long term.

Principal protected notes are different from equity indexed annuities in that they seem to focus instead on current hot and even speculative markets. They are often tied to indexes that have performed really well in the very recent past, instead of on proven performers. In my opinion, if you’re going to buy an investment that is based on, say, the performance of Latin American currency, you might as well plan a trip to Vegas and enjoy yourself. That is not to say that Latin American currency won’t perform well, it’s just that we have no real basis for believing that it will. Much of the current excitement surrounding currency notes is based on investors’ fears that the U.S. dollar won’t recover, and I don’t personally believe in making decisions that are fear based whenever it can be avoided!

In addition, the ‘guarantee’ attached to principal protected notes is not really as great as it may seem at first glance. For one thing, you have to tie up money for years, and all you’re really promised is a zero return. Sure, you’ll get your principal back, but so what? You could put your money in a plain old savings or money market account and outperform that!  

In my opinion, the bottom line is this: while principal protected notes may claim to be a no-lose investment, they are really a gamble in thin disguise. You are gambling on the fact that hot, speculative markets will stay that way – which they usually do not. So if you do decide to invest in a principal protected note, make sure it’s tied to an index you can believe in! 

A Closer Look At Principal Protected Notes - Part 2

 So far, we’ve looked at the very basic concept of principal protected notes. In this, the second part of my three part series, we’re going to take a more in depth look at this ‘guaranteed’ investment vehicle. 

Since principal protected notes are tied to many different types of asset classes, it’s very important that you understand the asset class underneath any principal protected note that you are thinking about buying. Especially since the underlying asset is what will ultimately determine if you make any money when the note matures. Here are some examples of notes that are currently being offered with participation percentages ranging from 100% - 275%:       

JPMorgan Chase (JPM) offers a note that is tied to the performance of the Japanese and European markets.       

Lehman Brothers (LEH) offers foreign currency based notes – including including Latin American countries, China and India.        

UBS (UBS) offers a note that is tied only to an index of commodities.

While these notes can be great if they perform well, the truth is that they often do not. For example, one note from CIPC had exposure to a portfolio of stocks, including Boeing (BA), Johnson & Johnson (JNJ) and 3M (MMM), which have all performed well historically. While the note may have seemed like a safe bet, over five years it has only averaged a return of under 5% due to the recent performance of the stocks it is linked to. To give you an idea of how poor this return really is, the S&P 500 is currently averaging around 12.5% annually.

A Closer Look At Principal Protected Notes - Part 1

Whenever you hear your broker or a representative from your financial institution starts to use words like “safety” and “stability” in reference to new investment vehicles, you can bet that we are all about to be in for a wild ride in the market! While investments that minimize risk and come with guarantees are definitely worth taking a look at, keep in mind that you will almost always have to give something up in order to gain something – in life and in the market.This three-part series is going to take a closer look at principal protected notes.  

These notes seem (on the surface anyway) to offer investors a guaranteed return of principal AND the chance to participate in the gains of the market. I always say that anything that appears to be too good to be true probably is, and a closer look at these highly structured investments shows that they are actually far from the no-lose proposition they appear to be on the surface. 

Similar to equity-indexed annuities, with principal protected notes, you agree to invest money in the notes for a pre-specificed amount of time which is usually between two and seven years. The return on the notes is usually directly linked to the return on a certain pre-specified index, so if the index rises from the time you buy the note to the time the note matures, you earn a pre-specified percentage of the return. On the flip side, if the index falls you simply get your initial investment back.

Year End Insurance Checklist!

At the end of every year, most employees of large companies have a small window of time to update or modify their health insurance coverage. Make sure you don’t ignore this opportunity to take advantage of new annual health care open enrollment options before the deadline passes!

One good reason to set aside some time to at least LOOK at the new (and old) health insurance rules and regs is that many companies automatically place employees who fail to fill out required paperwork into an undesireable default plan. And chances are this default plan does not offer the same level of coverage as your current plan. Also, you really should take another look at the options you chose last year – chances are that something has changed and you could be getting more out of your benefits.

The idea behind any wise insurance choice should be to get the highest amount of coverage for the lowest cost to you! The things to look closely at are:

Annual out of pocket costs

Coverage Amounts

Premiums

Possible out of pocket expenses

You definitely want to keep enough coverage to avoid financial disaster if some unlikely unfortunate medical issue comes up.

While your packet of insurance info can seem impersonal at best - and downright drool inducing at worst – it’s important to go through it once a year. Just like taxes, dealing with mundane insurance costs correctly can mean the difference between saving a few hundred dollars, and saving a few thousand dollars!

Emigrant Direct Online Bank

Online banks can offer all of the perks that your local bank offers, with additional incentives and twenty-four hour convenience. It’s important to get all the facts about an online bank before making the decision to switch. Many people use an online bank account for savings only, due to the typically higher interest rate, while keeping their current checking account active.

Emigrant Bank was established in 1850 by Irish emigrants as a mutual savings bank. In the 1920’s it had become the largest savings bank in the country and currently has thirty-five branches open in the New York Metropolitan area. Today, Emigrant Bank has over $13.8 billion in assets, and more than $890 million in net worth. Emigrant Direct is Emigrant Bank’s online banking system, and offers great flexibility, freedom and security. The American Dream Savings account is FDIC insured, which means that your total deposits can be insured up to $200,000 - which is up to $100,000 in all of your individual accounts, and up to an additional $100,000 in all of your joint accounts. You may also be eligible to extend coverage of your FDIC insurance, if you establish deposit accounts in additional ownership categories.Emigrant direct has no hidden fees or service charges, and in addition, you can earn a high interest rate on every dollar you deposit, and can enjoy twenty-four hour access to your account. Emigrant Direct can automatically link to your existing checking account, which allows you to make deposits or withdraw funds completely electronically via the Internet.

Fatal error: Call to undefined function ujc_siderss() in /home/basedfin/public_html/wp-content/themes/presslance/right.php on line 21