Bumper Guards

Yesterday's wild stock market activity just reinforces the reason why so many people do not invest in stocks. The fear of loss is much greater than the prospect of gains in your account. While most people would love to book 10% gains in their portfolio, they are deathly afraid of a day like yesterday or a year like 2008. But what if you could invest in stocks knowing that your principal was protected? Even better, what if this investment was FDIC insured? So you could reap the benefits of stock market appreciation without the downside risk of loss. Not possible? Doesn't exist? Think again. A relatively new type of investments called "Structured Notes" are now available to retail investors. The most popular kind right now are ones called Annual Income Opportunity CD's. These are like CD's on steroids! Basically you have a CD that is linked to a basket of 10 stocks. Each year the CD's pays interest based on the average return of the basket of 10 stocks. So if the stocks averaged 8%, you would be paid 8% interest. Cash! If the stocks went negative, you would get nothing. But you would not lose anything either. If your CD is held to maturity in 5 years, your principal is returned, guaranteed! Now, the returns are capped, typically in a range of 8-13% on the high side, so last year, if your basket averaged 27% and your cap was set at 12%, you would have received a 12% payment. It's kind of like going bowling with those bumper guards they put up for kids so they can't get a gutter ball. They probably won't get a strike, but they sure won't get a gutter ball! Ask your financial advisor if he or she sells structured notes. If they don't, well, you make the call...