What if you could capture the potential gains of the S&P 500, but limit your losses if the market goes down? Or earn above-market income given the right stock market conditions? How about gaining some market exposure while protecting principal with FDIC insurance, up to applicable limits? Structured investments can meet a variety of objectives, offering you the potential to better balance the risks and rewards associated with your investments.
Structured investments offer a combination of return potential and protection features, making them a compelling option especially in times of market uncertainty.
A structured investment is an obligation from an issuing firm to provide a return based on the performance of an underlying investment, such as a stock, an exchange traded fund (ETF) or most commonly, a market index, referred to as the “underlier.”
Each structured investment is designed around the underlier, basing its outcome of the performance on the underlier. These investments are distinct in that they come in a wide variety, each with terms and conditions designed to achieve specific investment outcomes.
Some offer greater protection against loss with moderate growth potential, while others possess greater growth potential with less protection. Others offer the potential to pay attractive periodic coupons, dependent on the underlier’s performance.
Types of structured investments
Structured investments come in two distinct forms: market-linked certificates of deposit (MLCDs) and market-linked notes (MLNs):
Market-Linked CDs: Traditional certificates of deposit (CDs) offer full principal protection when held to maturity and are typically FDIC insured to applicable limits per depositor. They offer guaranteed income over the life of the deposit, but it could be relatively low. MLCDs offer an alternative to traditional CDs, maintaining the same level of principal preservation but tying their potential return to the performance of an underlier rather than the fixed interest rate of a CD.
Some MLCDs are designed to potentially pay periodic coupons, while others offer potential returns that are paid at maturity. By investing in MLCDs, you typically forgo the fixed payment of a traditional CD in exchange for the potential to earn a higher return based on the performance of the underlier, while maintaining principal protection with FDIC insurance. If you’re seeking some growth potential while maintaining full capital preservation you may consider MLCDs.
Market-Linked Notes: These notes are obligations issued by financial institutions and are backed by the creditworthiness of that issuing firm, like the credit risk associated with corporate bonds. The return characteristics of market-linked notes, however, are more like those of the underlier than a corporate bond. Most MLNs offer a balance between downside protection against market losses and potential for attractive growth or income.
All structured investments, whether issued as market-linked notes or market-linked certificates of deposit, mature on a specific date and, in some cases, may be called early by the issuer. The investment terms are honored and fully realized on these dates.
It’s generally recommended to hold structured investments to maturity, at which point their full value is realized. Before then, the interim value of your investments will vary based on distinct risk factors.
Some things to consider:
Creditworthiness of the issuer: While MLCDs are fully principal-protected (when held to maturity) and FDIC insured, if a MLN issuer becomes insolvent, you are unlikely to receive all your investment as detailed by the investment’s terms. Understanding the credit risk of any structured investment is important.
Liquidity and statement value: Structured investments are designed to be held to maturity and generally have limited liquidity. Prior redemptions may result in a loss of principal.
Fees: Structured investments typically involve greater fees than investing directly in the underlier.
Understanding performance: Even with protection features, you can suffer a loss based on the MLN underlier’s terms and performance. Understanding trade-offs and scenarios where you outperform or underperform the underlier is important when setting performance expectations.
Structured investments are often complex and are not suitable for all investors. Before deciding whether it’s right for you, review its unique terms and conditions outlined in the investment’s offering documents.
Principal invested in market-linked CDs is insured by the FDIC up to applicable limits. Other investments, which are securities and are offered through Raymond James are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.
Each of Raymond James & Associates, Inc., and Raymond James Financial Services, Inc., is a broker-dealer, is not a bank, and is not an FDIC member. All references to FDIC insurance coverage in relation to Brokered CDs and/or Market-Linked CDs address FDIC insurance coverage, up to applicable limits, at the insured depository institution that is disclosed in the offering documents. FDIC insurance only covers the failure of FDIC-insured depository institutions, not Raymond James & Associates, Inc., or Raymond James Financial Services, Inc. Certain conditions must be satisfied for pass-through FDIC insurance coverage to apply.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.
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