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Structured Goldman Sachs Notes

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  • The White Coat Investor
    replied
    I just had a long discussion with someone via email about this specific product. Not sure if that was the OP.

    Unlimited downside, limited upside, illiquidity....what's not to like? It's just a weird bet to make that the indexes will both perform similarly and both be underwater, but not too underwater, in 10 years.

    Leave a comment:


  • VagabondMD
    replied




    Goldman (and other such banks) are extremely good at structuring these complex products in a way such that the odds are very high that the result will favor the bank.  If you read this linked Larry Swedroe piece, I think you will know all that you need to know in order to walk away from this product very quickly.

     

    http://www.etf.com/sections/index-investor-corner/swedroe-4?nopaging=1
    Click to expand...


    Thank you for linking the Swedroe article. Very convincing arguments against structured notes...that and the insane terms in the OP!

    Leave a comment:


  • AlexxT
    replied
    Never talk you your "bank adviser" again.

    If I understand this note, if the stock market goes down a lot, you can lose your principal.  If it goes up, you're limited to 6.8%.  It sounds like a great deal for Goldman.

    If you want to be in the stock market, just buy the Total Market Index Fund.  You'll probably get more than 6.8%, but if the market goes down, you can hold and you'll eventually get your money back.  On the other hand, if you want a bond, just buy a bond.

    I have a "friend" who tried to sell me something like this.  He pitched it as a bond. Whatever they call it, it functions as a complex options scheme.  No thanks.

    Treasuries are paying 1-2%, and this is paying 6.8%.  There's a reason why Goldman Sachs is  offering more interest, and I'm pretty sure that whatever they are offering isn't enough.

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  • Zaphod
    replied
    Agree, this is an unnecessarily complicated note, with a structure that if it were to perform means you'd basically be banking on the indices going from <50% loss to at most flat for a decade. The coupon is not high either, you can find preferreds all over the place if looking for a nice set rate, and theyll have much simpler terms. Its a heads I win tails you lose situation for GS.

    You have preferreds, puts, calls, leaps, and all kinds of similar things that are cheaper and less complicated (saying a lot when your talking about options).

    Leave a comment:


  • BigLaw1636
    replied
    Goldman (and other such banks) are extremely good at structuring these complex products in a way such that the odds are very high that the result will favor the bank.  If you read this linked Larry Swedroe piece, I think you will know all that you need to know in order to walk away from this product very quickly.

     

    http://www.etf.com/sections/index-investor-corner/swedroe-4?nopaging=1

    Leave a comment:


  • Hatton
    replied
    Ok. The terms of the structured note are complicated and confusing. The smartest people in finance work for Goldman.  I have been pitched stuff like this as well. I would stick to vanguard products that are easy to understand And the expenses are transparent. This is a product being sold to you like whole life.

    Leave a comment:


  • tl278
    started a topic Structured Goldman Sachs Notes

    Structured Goldman Sachs Notes

    Hi everyone, I'm new to this forum and wondered if I can get your opinion on a product I'm thinking about investing in during this volatile market.  It's a structured GS note that my bank adviser offered me.  Basic jist is 6.8% annual interest if the market does nothing or goes down but if it goes up it'll get called off and i'll receive my capital along with the interest.

    Terms:

    If the closing level of either the S&P 500® Index or the Russell 2000® Index on any determination date is less than 50.00% of its initial level, you will not receive a coupon on the applicable payment date. The amount that you will be paid on your note is based on the performances of the indexes. The notes will mature on the stated maturity date (expected to be April 13, 2026), unless automatically called on any determination date commencing in March 2017 to and including December 2025. Your note will be called if the closing level of each index on any such determination date is greater than or equal to its initial level (set on the trade date, expected to be March 29, 2016). If your note is called, you will receive a payment on the next payment date (the tenth business day after the relevant determination date) equal to the face amount of your note plus a coupon (as described below). Determination dates are the 29th day of each March, June, September and December commencing in June 2016 and ending in March 2026. If on any determination date the closing level of each index is greater than or equal to 50.00% of its initial level, you will receive on the applicable payment date a coupon for each $1,000 face amount of your note equal to $17.00. The amount that you will be paid on your note at maturity, if it has not been called, in addition to the final coupon, if any, is based on the performance of the index with the lowest index return. The index return for each index is the percentage increase or decrease in the final level of such index on the final determination date from its initial level. At maturity, for each $1,000 face amount of your note, you will receive an amount in cash equal to: · if the index return of each index is greater than or equal to -50.00% (the final level of each index is greater than or equal to 50.00% of its initial level), $1,000 plus a coupon calculated as described above; or · if the index return of either index is less than -50.00% (the final level of either index is less than 50.00% of its initial level), the sum of (i) $1,000 plus (ii) the product of (a) the lesser performing index return times (b) $1,000. You will receive less than 50.00% of the face amount of your note and no coupon. If the index return for either index is less than -50.00%, the percentage of the face amount of your note you will receive will be based on the performance of the index with the lowest index return. In such event, you will receive less than 50.00% of the face amount of your note and no coupon.

     

    If the note matures in 10 years because the S&P and Russell have both stayed lower than their starting points for a decade, then at that point the note will mature. If either index is below 50% of the initial starting level upon maturity, you would then take one-for-one losses with how much it is down. For example, if the S&P is down 55% at maturity, you would lose 55% of the principal invested. Contrast that with the example of the S&P down 45%, you would receive back 100% of your principal.
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