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What would you say to 100% market upside with no downside risk?

by , 22 September 2017
What would you say to 100% market upside with no downside risk?
Imagine turning on the TV and finding the following Infomercial:

We are giving you the opportunity to invest in the S&P500. It is the world’s premier equity index, dwarfing the JSE. Receive dollar based returns while getting exposure to some of the world's largest and most innovative companies including Apple, Berkshire Hathaway and Caterpillar.
But that’s not all, we also give you capital protection. Even if the S&P falls 30% your initial investment is still guaranteed. 
And even if the S&P is only positive at the end of 3 ½ years, you will earn a guaranteed return of 30%. That’s right 30%, even if the index is up just 1%.
But wait there is even more, if the S&P goes up more than 30%, your return is not capped. You still get all the upside. So, if it ends up 45% you get the whole lot!
And all of this will be backed by one of South Africa’s largest banks, which guarantees your profits no matter the downside.

Does that sound too good to be true? 

The good news is that it is not. The example I have given you is an actual structured product that you can invest in right now and it is just one of many options. 
Structured products are pre-packaged investments, created to achieve very specific investment goals. Though very popular internationally, they are relatively under-used by South African retail investors. Which is a pity as they can be particularly well suited to our particular financial needs. 
Most structured products are created using a combination of various derivatives. However, unlike simple “linear” derivative instruments, they are carefully constructed to lower risk for the investor and achieve desired returns. Exactly how this is achieved can be a little complicated, but you can take comfort from the fact that these products are backed by the largest banks in South Africa, which means you can rely on them performing exactly as advertised. 

Three critical rules to know before you buy a structured product 

Critical rule #1: You must understand you are relying on the creditworthiness of the issuing bank. If Absa is issuing the product and Absa was to go bankrupt, your investment would be at risk. So, the first tip is never to get all your structured products from a single issuer. 
Critical rule #2: Secondly, though the product will always perform exactly as advertised, they can be rather difficult for a non-professionals to fully understand. And some structured products are better than others. Thus, it is best for you to first consult with a knowledgeable expert!
Critical rule #3: Finally, most structured products are only open for a short period of time before the issuing bank closes the structure. When a certain structure becomes available, there is no guarantee you will be able to find that product again. When you see an opportunity investigate it immediately.
If you follow these three rules, structured products can offer you a wonderful complement to your other investments. 
If you’re interested in finding out more about upcoming structured product offers send me an email at support@randswiss.com or call me on +27 781 4454.

What would you say to 100% market upside with no downside risk?
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