Singapore is the third wealthiest country in the world with a per capita GDP of $85,198.16. Our country is one of the leading centers of commerce primarily because of our financial center – the fourth largest in the world – and our economic background that pushes for continuous innovation.
As a leading runner in the finance industry, it is natural for Singapore to have a great variety of investment products. Our investment products range from simple ones to very complex ones like Structured Notes.
What is a Structured Note?
A Structured Note is a well-known investment product known for its flexibility. It is an instrument whose performance of returns is connected to another asset’s or benchmark’s performance. These assets and benchmarks may be market indices, equities, bonds, baskets of securities, fixed-income securities, forex rates, derivatives, commodities, interest rates, credit swaps, options, futures, and even hedge funds.
How do Structured Notes work?
The returns of the structured note can exist in the form of interest returns or return of principal, which are both linked to the performance of the underlying asset or benchmark.
Credit-linked structured notes are linked to the credit standing of a basket of securities, a portfolio, or single entity and/or the market value of the debt securities of the said entities. Some structured notes are linked to multiple assets and benchmarks (credit rating and equity price, for instance). Structured notes may be related to rates, like forex rates, interest rates, commodity prices, and other non-conventional securities and instruments.
How risky are Structured Notes?
Structured notes are infamous for their being significantly involved in the 2008 financial crisis. Unlike its recently famous sibling – Structured Deposits (link to Are Structured Products Good Investments?”) -, Structured Notes do not come with a guarantee of maximum capital return. Its true use lies only in the performance of the underlying assets it is pegged on. Investors are advised to pay no heed to salespeople who market their Structured Notes products with “capital protection” because Structured Notes do not come with anything like that.
What should I do if I want to invest in Structured Notes?
There are things an investor must always consider whenever she’s interested in purchasing structured notes:
- Make sure that the issuer of the note is an active entity that has a history of stability and liquidity in economic downfalls.
- Check if the returns of the structure note are worth the risk you’re taking. If not, shifting your funds to a safer vehicle may be the wiser choice.
- Analyze the nook and cranny of the conditions the issuer is offering. If the conditions seem inequitable to you, do not hesitate to reject the idea of investing in structured notes the issuer is selling.
Who are Structured Notes for?
Structured notes are risky investment vehicles that will fit the appetite of risk-hungry investors.
Before investing your money in risky investment vehicles, you have to come to terms with yourself regarding your investor profile. You have to know first if you are conservative or a risk-taker. You also have to determine if you have a strong need for cash all the time or you’re the type of person who prefers to have emergency funds for all situations. If you have a strong preference for liquidity, Structured Notes may not be the vehicle for you.
If you are a diligent investor who is passionate about finance, money, and economics, and just love to see your own investments grow, structured notes are worth a try.
How much can I lose?
It is possible to lose all your funds in a structure not, truth be told. There are different types of risk in investing in Structured Notes that can jeopardize either your money or its worth. Do not invest in these notes just because you just heard from a friend that it generates significant returns. Always remember that capital preservation and risk management are just as important as the rate of returns, if not more important.
How can I profit from Structured Notes?
Making structured products profitable and becoming a better investor require due diligence, the vow of learning the product and the market it participates in, a deep understanding of its underlying assets, the performance of the product itself, and your commitment to the purpose of your investment. It is advised that investors should only invest in instruments that they can handle when the worst case scenario happens.
If you want or if you are planning to invest in structured notes, make sure you do your part by investigating every angle that may happen if you invest in such a product.
Most importantly, only invest in products that solve your problem or help you achieve your financial goals.
She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen).
Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).
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