MIKE COADY

Financial Expert | Business Excellence | Growth Expert
Mike is an award-winning financial expert and a well-known leader in the financial industry.Having taken two of his previous firms to Chartered Status in the UK and also achieved the prestigious National IFA of the Year Award – Highly Commended.In addition, Mike is a well known Independent Financial Adviser and Money Coach. Qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Founding Fellow of the Institute of Sales Professionals (FF.ISP), a Fellow of the Institute of Directors (FIoD) and featured as a highly qualified Financial Adviser in Which Financial Adviser.
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Investing into Structured Products

Mike CoadyInvestments & Savings Investing into Structured Products
Structured Products

Investing into Structured Products

Like many good things in life, Structured Products are often misunderstood and their value underestimated.

In essence, a Structured Product provides the opportunity for clients to have an investment linked to the growth of a range of underlying assets including stocks and shares, commodities, property, etc, and in doing so potentially enjoy greater returns than the performance of the actual assets themselves. In addition, most products have some form of in-built protection to mitigate against significant falls in markets, a valuable feature that should never be underestimated in these uncertain economic times.

Let us look at Autocallables for example. Investors in these products have their investments linked to a range of stock markets for a period of typically 5 Years and during this period the portfolio is subject to a regular, simple test (normally every 12 months).

This test purely asks one basic question each year: are the markets in which the client investment is linked equal to or higher than they were at the date the initial investment was made. If the answer is yes, then the client will be paid a coupon and have their initial investment returned in full. Some of the coupon levels over the past few years have been approaching 20% per annum. If the answer is no, then the product continues for a further 12 months when the test is repeated. Each time the test is undertaken the total return that the client receives will be equal to the coupon % multiplied by the number of years the investment has been held.

If the answer is always no for the first 4 Years of the investment period then the product runs through to the maturity date (typically 5 Years) where there are 3 possible outcomes:

Outcome 1:

The Investment has passed the test on the maturity date = 5 Years’ worth of coupons and initial investment returned.

Outcome 2:

The underlying stock markets are lower at maturity than they were at the initial date of investment but are above a pre-defined protection level (typically 40%) = Full return of initial investment only.

Outcome 3:

The underlying stock markets have fallen below the protection level = Return of the investment in proportion to the performance of the relevant stock market or markets.

As already highlighted, the value of the protective barrier should not be underestimated, as, in the above example, it would require the relevant markets to fall by more than 40% before clients had any exposure to potential losses on their capital.

The growing interest in Structured Products from some clients is very much a testament to their potential value in the current market climate.

About Mike Coady

Mike Coady is an expat expert based in Dubai and is on hand to help with all of the above and more.

Mike is an award-winning money coach and industry leader in the financial sector.

Qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Founding Fellow of the Institute of Sales Professionals (FF.ISP), and a Fellow of the Institute of Directors (FIoD) and featured as a highly qualified Financial Adviser in Which Financial Adviser.

To learn how to choose a great financial adviser, download our free guide.

Blog published by Mike Coady.

Mike Coady
Comment
  • Londoner

    Outcome 4: The counterparty goes bust, and you lose your entire investment. That’s what happened to thousands of UK savers with Lehman-backed structured products five years ago, as deVere well knows.

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