I have never been a fan of financially engineered products by Wall Street or Bay Street as more often than not these products benefit the broker or issuer far more than the client.
In recent years the latest “shell game” is a product called principle protected notes. These are very complicated deals where the capital value of the investment is supposedly “protected” meaning that if the market goes down that the investor is guaranteed the principle at a certain date. Furthermore these things are very expensive and because the charges are “internal” and embedded in the investment itself one cannot not see the true cost.
These types of investments are commonly issued by insurance companies in both Canada and the USA.
These types of products go against most of the basics I look for in an investment including transparency, low-c0st, liquidity and ease of understanding.
Gretchen Morgenson at the New York times documents a classic case here. Worth a read if you own or are considering buying one of these investments.
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