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Structured Products - Stay Away!

Written by Ethan S. Braid, CFA on .

Structured Products – Stay Away!

 

What are structured products?

As I write this memo, the major investment banks and the legions of stockbrokers they employ are pushing structured products out onto their customer base like never before. A structured product is an investment created by Wall Street investment banks that combines traditional investments like stocks and bonds with derivates such as puts and calls. Structured products are created for and marketed to a very wide range of investors. For example, some structured products are geared towards investors who desire principal protection while others are designed for investors who want to speculate and desire leverage to enhance their return opportunity. In all cases, structured products are just that – products. These products are created and sold to generate profits for the investment banks who manufacture them. Sometimes they perform and the customer makes money, sometimes they don’t and the customer loses money. Win, lose or draw, the stockbroker who sells them makes money and so does the firm who made them.