A Special Kind of Market-Linked CD?

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joer1212
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A Special Kind of Market-Linked CD?

Post by joer1212 » Sun Nov 11, 2018 7:24 pm

Can someone give me his opinion on the following investment vehicle, and clarify exactly how it works?
From what I understand, it guarantees an annual rate of return (the CD portion) in addition to any (partial?) returns of a diversified index ("GS Momentum BuilderMulti-Asset 5 ER Index"):

http://www.scholesinsurance.com/wp-cont ... eposit.pdf

Grt2bOutdoors
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Re: A Special Kind of Market-Linked CD?

Post by Grt2bOutdoors » Sun Nov 11, 2018 7:32 pm

joer1212 wrote:
Sun Nov 11, 2018 7:24 pm
Can someone give me his opinion on the following investment vehicle, and clarify exactly how it works?
From what I understand, it guarantees an annual rate of return (the CD portion) in addition to any (partial?) returns of a diversified index ("GS Momentum BuilderMulti-Asset 5 ER Index"):

http://www.scholesinsurance.com/wp-cont ... eposit.pdf
If you are buying a certificate of deposit from an insurance site - Stop!
If you can't understand it and need someone to explain it to you - Strike 2. Stop!
If you are told you will receive a portion of something, in essence a derivative linked return. - Strike 3. Don't even think about wasting your time on it, these products are sold to make money for the issuer, the buyer.....the buyer usually winds up holding the short end of the stick. The buyer loses while Goldman and the middlemen who peddle these things wins.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Rob5TCP
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Re: A Special Kind of Market-Linked CD?

Post by Rob5TCP » Sun Nov 11, 2018 7:35 pm

Went to a seminar

1. No dividends
2. Usually sever limits on gains and
little or none on the downside (other
than you get your original money back
when it "matures").

I did have one and it did better than a CD,
but the market was strong and I only got
a fraction of what the market did.

It's not special - these have been around
at least 20 years.

joer1212
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Re: A Special Kind of Market-Linked CD?

Post by joer1212 » Sun Nov 11, 2018 8:11 pm

Rob5TCP wrote:
Sun Nov 11, 2018 7:35 pm
Went to a seminar

1. No dividends
2. Usually sever limits on gains and
little or none on the downside (other
than you get your original money back
when it "matures").

I did have one and it did better than a CD,
but the market was strong and I only got
a fraction of what the market did.

It's not special - these have been around
at least 20 years.
From what I gather, this particular one guarantees a positive return, not just your money back.

Dottie57
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Re: A Special Kind of Market-Linked CD?

Post by Dottie57 » Sun Nov 11, 2018 8:19 pm

Any FDIC protection? I bet not.

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nisiprius
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Re: A Special Kind of Market-Linked CD?

Post by nisiprius » Sun Nov 11, 2018 8:20 pm

If you have been give a vague impression that you can get almost all the return of the stock market, without taking any risk of losses in the stock market, then stop right away. You know that's too good to be true, don't you?

So, you know that even if they have not stated anything factually inaccurate, from an ethical point of view they are still lying to you because they have managed to put an untrue idea into your mind. You can be sure that the product is complex and obfuscated. As an intellectual game, it may or may not be interesting to spend the time it will take to figure out where the catch is, but rest assured there is one.

It's a scam. It's a mild, gentle scam. You won't lose all your money, in fact you'll make money... but not as much as you deserve to make.
Last edited by nisiprius on Sun Nov 11, 2018 9:44 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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nisiprius
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Re: A Special Kind of Market-Linked CD?

Post by nisiprius » Sun Nov 11, 2018 8:33 pm

P.S. Needless to say, you will find it hard to find out much about the "GS Momentum Builder Multi-Asset 5 ER Index." But from 11/15/2013 to date, it has grown $100 to $118.23 and thus would have grown $10,000 to $11,823. I don't know how that filters through all the other CD machinery and rules (you did see the bit about "your payment may be higher or lower than the actual return on the index") but, notice the amount of growth.

$10,000 in that "diversified index," the famous and well-known (sarcasm) GS Momentum Builder Multi-Asset 5 ER, earned an additional $1,832.

Image

Meanwhile, $10,000 invested in an S&P 500 index fund on 11/15/2013 would now have grown to $21,149.50. That is, it would have earned an $11,149.

Image

Maybe you think this is "a market-linked CD," but the underlying index made $1,832 when the stock market made $11,149--six times as much.
Last edited by nisiprius on Sun Nov 11, 2018 9:45 pm, edited 4 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Beat The Street
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Re: A Special Kind of Market-Linked CD?

Post by Beat The Street » Sun Nov 11, 2018 8:37 pm

These are FDIC insured. They aren’t great investments, but other forum members are wrong to compare the returns of an FDIC insured CD to the S&P 500.
“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have—or don’t have—in their portfolio.” -Taleb

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nisiprius
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Re: A Special Kind of Market-Linked CD?

Post by nisiprius » Sun Nov 11, 2018 8:41 pm

Beat The Street wrote:
Sun Nov 11, 2018 8:37 pm
They aren’t great investments, but other forum members are wrong to compare the returns of an FDIC insured CD to the S&P 500.
I don't know which forum members you are referring to, but I thought that I, personally, had gone to great pains, to the point of providing charts, to show exactly how the "Goldman Sachs Momentum Builder Multi Asset 5 index" is not the S&P 500.

Meanwhile, the original poster called it a "market-linked CD," suggesting that somehow he had received the impression it is linked to the market.
Beat The Street wrote:
Sun Nov 11, 2018 8:37 pm
These are FDIC insured.
I'm not sure that's a fully adequate summary of these details:
  • The Full Face Amount of and Coupons Due on Your CDs May Not Be Protected by FDIC Insurance
  • To the Extent Payments Under the CDs Are Not Insured by the FDIC, You Can Depend Only on Our Creditworthiness for Payment on the CDs
  • Your CDs Are Subject to Mandatory Redemption. In the event our status as an insured depository institution is terminated by the FDIC or us or as a result of our actions or if regulatory or statutory changes in the future render the CDs ineligible for FDIC insurance coverage, to the extent permitted by applicable law and regulation we will redeem your CDs in full, unless they mature prior to the redemption date
  • If Your CDs Are Mandatorily Redeemed You May Not Receive the Mandatory Redemption Amount for up to Almost Two Years and You Will Not Receive Any Interest Payments on Such Amounts. In Addition, the Full Mandatory Redemption Amount May Not Be Protected by FDIC Insurance
  • If Regulatory Changes Render the CDs Ineligible for FDIC Insurance Coverage, Your CDs May Not Be Covered by FDIC Insurance and Will Be Subject to Mandatory Redemption
"If Your CDs Are Mandatorily Redeemed You May Not Receive the Mandatory Redemption Amount for up to Almost Two Years..." That would be annoying.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Grt2bOutdoors
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Re: A Special Kind of Market-Linked CD?

Post by Grt2bOutdoors » Sun Nov 11, 2018 9:22 pm

Beat The Street wrote:
Sun Nov 11, 2018 8:37 pm
These are FDIC insured. They aren’t great investments, but other forum members are wrong to compare the returns of an FDIC insured CD to the S&P 500.
You are the only poster in the thread who is making the comparison of an FDIC insured CD to the S&P 500. Though, when one mentions the name as being "market-linked" one can make the assumption that some sort of trading security is involved.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

UpperNwGuy
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Re: A Special Kind of Market-Linked CD?

Post by UpperNwGuy » Sun Nov 11, 2018 9:33 pm

joer1212 wrote:
Sun Nov 11, 2018 7:24 pm
Can someone give me his opinion on the following investment vehicle, and clarify exactly how it works?
From what I understand, it guarantees an annual rate of return (the CD portion) in addition to any (partial?) returns of a diversified index ("GS Momentum BuilderMulti-Asset 5 ER Index"):

http://www.scholesinsurance.com/wp-cont ... eposit.pdf
Don't do it. Run in the opposite direction. Read what nisiprius wrote in his responses to you.

joer1212
Posts: 429
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Re: A Special Kind of Market-Linked CD?

Post by joer1212 » Sun Nov 11, 2018 10:08 pm

nisiprius wrote:
Sun Nov 11, 2018 8:20 pm
If you have been give a vague impression that you can get almost all the return of the stock market, without taking any risk of losses in the stock market, then stop right away. You know that's too good to be true, don't you?
Yes, I know there's no such thing as a free lunch. I just wanted to find out how much the cost of the lunch is.

joer1212
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Re: A Special Kind of Market-Linked CD?

Post by joer1212 » Sun Nov 11, 2018 10:12 pm

nisiprius wrote:
Sun Nov 11, 2018 8:33 pm
P.S. Needless to say, you will find it hard to find out much about the "GS Momentum Builder Multi-Asset 5 ER Index." But from 11/15/2013 to date, it has grown $100 to $118.23 and thus would have grown $10,000 to $11,823. I don't know how that filters through all the other CD machinery and rules (you did see the bit about "your payment may be higher or lower than the actual return on the index") but, notice the amount of growth.

$10,000 in that "diversified index," the famous and well-known (sarcasm) GS Momentum Builder Multi-Asset 5 ER, earned an additional $1,832.

Image

Meanwhile, $10,000 invested in an S&P 500 index fund on 11/15/2013 would now have grown to $21,149.50. That is, it would have earned an $11,149.

Image

Maybe you think this is "a market-linked CD," but the underlying index made $1,832 when the stock market made $11,149--six times as much.
Good point. But, I never expected to get downside protection in addition to 100% market upside potential. If such a product existed, everyone would flock to it.

joer1212
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Re: A Special Kind of Market-Linked CD?

Post by joer1212 » Sun Nov 11, 2018 10:17 pm

Beat The Street wrote:
Sun Nov 11, 2018 8:37 pm
These are FDIC insured. They aren’t great investments, but other forum members are wrong to compare the returns of an FDIC insured CD to the S&P 500.
True. They have different risk/return profiles.

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Rob5TCP
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Re: A Special Kind of Market-Linked CD?

Post by Rob5TCP » Mon Nov 12, 2018 8:55 am

joer1212 wrote:
Sun Nov 11, 2018 8:11 pm
Rob5TCP wrote:
Sun Nov 11, 2018 7:35 pm
Went to a seminar

1. No dividends
2. Usually sever limits on gains and
little or none on the downside (other
than you get your original money back
when it "matures").

I did have one and it did better than a CD,
but the market was strong and I only got
a fraction of what the market did.

It's not special - these have been around
at least 20 years.
From what I gather, this particular one guarantees a positive return, not just your money back.
Everbank was one of the earliest ones (that I know of) to offer this. I don't remember whether
the little small amount I invested guaranteed a small return or not.

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