Do Structured Notes Guarantee Above Average Returns?
Nothings guaranteed (except death and Taxes)
Keep in mind Structured Notes are a powerful way to grow money because they offer some guaranteed rate of return over a long period of time, typically 5 to 10 years. Structured Notes tend to offer investors higher then average returns on their investments when compared to Certificate of Deposits (CD’s), Money Market Accounts or other safe investments. In considering to invest in Structured Notes rates can vary and their is no government standard on Structured Notes, unlike the home loan or mortgage industry where the standard is uniform. When investing in Structured Notes a good indicator to use in determining a fair rate of return for ones money is mortgage rates, LIBOR, or Certificate of Deposits (CD’s). Today’s mortgage rates or home loan rates tend to track what conservative investors are looking for in a rate of return.
So the smallest rate of return you should accept on a structured note is the lowest going rate for a mortgage. The reason is their is risk in investing in any investment, including Structured Notes, so why take less then what a conservative investment would pay. Secondly, Structured Notes are typically used for very low risk investments because of this their is a strong backing either by a piece of property, collateral, government entity or company that is offering the Structured Notes risk.
Most of us have gone to a bank and borrowed money to purchase our first house. While you may or may not have read your loan documents, I bet you if you think back you can remember the interest rate you paid for you 1st loan? Remember the low rate of 4.5%, 8%, or 12% you got for your 1st loan. Well as a Structure Note investors these are some of the rates you could be getting!
The U.S. Securities & Exchange Commission has a great article outlining the risks and questions investors may have when looking to invest in Structured Notes, see their article here.
By Robert W. Kaempen/ President, RWK Group, LLC