Ever since 2012, I’ve invested in equity structured notes to provide for some downside protection. Structured notes have sometimes gotten a bad reputation because they may be complex and expensive. However, just because you don’t understand something doesn’t mean you should burn it at the stake.
In hindsight, I didn’t need downside protection since the S&P 500 has performed very well since I left work. However, because I didn’t have a steady paycheck, I lacked the courage to invest significant sums of money in the stock market. If it weren’t for equity structured notes, I may have just kept the funds in cash or bought even more real estate instead.
For downside protection, an investor in a particular structured note usually has to give up something. That something is usually dividends or capped upside. As a result, these notes tend to underperform during a bull market. But not this one.
Let me share a structured note that just matured as a case study. You can then tell me how bad it really is.