Financial Planning
Structured deposits – is it really safe?
Who would like to cap all the upside returns and take on all the downside risks and pay a fee in between?
Most investors prefer to do the opposite, which is to minimize your downside risks and increase your upside returns but if you do not read in between the lines of the structure, you might be in for a rude shock!
But if you have seen how a structured deposit is actually designed, it is meant to work unfavourably for an investor and all benefits reward the financial institution or bank.
I was speaking to a specialist doctor end of last year and he shared very optimistically of how his banker had been making good money for him in these “safe instruments” with lucrative returns.
I tried to find out more and he shared that he was using structured deposits and that the risks were minimal and the returns were fairly decent. I highlighted the risks and rewards but it fell on deaf ears. With a “safe instrument” of a structured deposit that can give a range of 2-4%pa in less than a year, who would think that there is a better strategy.
When I was having a conversation with this same specialist again this year in recent times, he shared of how the markets have turned. His $1mil worth of structured note was breached and he had to hold onto the underlying share of the company.
The last valuation he saw was roughly about $250k and it was all on a very concentrated allocation onto one company which detracted away from being able to sleep well with no peace of mind. His biggest worry was now whether to continue to hold on, hoping for the single company to recover or to diversify his portfolio to reduce his risk further in case the company went into further decline.
This would have been the plight of many investors, I could imagine, especially with the sudden change of events over the last 6 months.
If you know of someone who would favour peace of mind and be able to sleep well at night, and want some help with their finances, I am sure we can have an initial chat with no obligations.
