Structured notes aren't the strategy. They're a tool.
Certain structured notes can create market-linked growth or income with defined payoff terms, including buffers or barriers in some structures. Those features come with tradeoffs and risks, and the details matter.
I don't want to start with the note. I want to start with what you're trying to accomplish.
Understand How They Work →What is a structured note?
A structured note is generally a debt security issued by a financial institution whose return is linked to an underlying index, stock, basket or other reference asset. Instead of simply owning that investment, you receive a contractual payoff based on rules established when the note is issued.
Those rules can be designed around different outcomes. Some notes emphasize income. Some emphasize market participation. Some provide a defined buffer or conditional barrier against a portion of market losses. In exchange, you may give up some upside, liquidity, dividends or other benefits of direct ownership.
That's why “structured note” doesn't tell me enough.
Two notes can have completely different jobs, risks and outcomes. I care about the actual terms.
Sometimes traditional choices leave a pretty big gap.
You may want more return potential than cash or traditional fixed income, but you may not want the same exposure as simply owning more stocks. Or you may want portfolio income without relying on the same sources everywhere else.
A well-designed structured note can sometimes create a different risk and return profile. That can be useful. But there is always a tradeoff.
You may give up some upside. Your money may be tied up. Income may be conditional. Downside protection is specific, not absolute. And the issuer's ability to pay matters.
Income
Some notes are designed to generate periodic coupons when stated conditions are met.
Growth with defined protection
Some structures provide market-linked upside while absorbing or conditionally protecting against a defined portion of downside at maturity.
Transition
A defined maturity can sometimes help bridge money between what it is doing today and what you expect it to do next.
Portfolio design
A note can create a payoff that behaves differently from simply adding another stock or bond fund.
I don't build a financial plan around structured notes. I use them when a particular structure can do a specific job better than the alternatives we're considering.
If you can't explain the note, you probably shouldn't own it.
What am I investing in?
How do I make money?
What do I give up?
How can I lose money?
When do I get my money back?
Who owes me the money?
If we can't answer those six questions in plain English, we shouldn't be talking about buying it yet.
Interested in adding structured notes to your portfolio?
I help investors evaluate structured notes, understand the tradeoffs, compare structures and determine whether a particular note makes sense within the rest of their portfolio.
That means looking beyond the headline coupon or upside number. We evaluate the underlying reference, issuer, maturity, liquidity, call features, buffer or barrier, loss scenarios and what you would own instead.
The note should earn a job in the portfolio because the complete structure is useful.
Talk With Me About Structured Notes →Start with the question you're already asking.
What is a structured note?
02Are structured notes risky?
03Can you lose money in a structured note?
04What does downside protection actually mean?
05How do structured notes generate income?
06What is a buffered structured note?
07What is a barrier in a structured note?
08What happens if I need my money before maturity?
09What happens if the bank issuing my structured note fails?
10Structured notes vs. ETFs: What is the difference?
11Are structured notes worth it?
12Should I add structured notes to my portfolio?
13How do I invest in structured notes?
14Where can I buy structured notes?
15How do I find a financial advisor who understands structured notes?
16What should I look for before buying a structured note?
The interesting part isn't the product. It's what the product allows us to design.
Let's figure out what you want the money to accomplish, understand the tradeoffs and then decide whether a structured note deserves a job in the portfolio.
Talk With Me About Structured Notes →Read the primary guidance.
Structured notes are complex securities and terms vary by offering. FINRA highlights liquidity risk, issuer credit risk, payoff complexity and the importance of understanding each product’s distinct features, risks and rewards.