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Discover the Complete Know-How on How Structured Products Cheat Sheet Works

structured products cheat sheet

Introduction

Are you confused about which portfolio management to choose? Are you intimidated by the presence of two components backed structured notes, common stocks, shares, mortgage-backed securities, indices, credit scores, and a whole lot of stuff? Then, your one-stop hub for all of your woes would be the creation of a structured product cheat sheet. And here is what a structured products cheat sheet is!

A document discusses how you want to work towards achieving your goals and objectives of the chosen structured products basket and this is what a cheat sheet is all about. You may be confused about which plan to choose before you present your case to a wealth or asset manager.

Therefore, when you draw up a consolidated plan of action in the form of cheat sheets, you can explain to your financial services firm what you typically expect from your chosen investment portfolio. 

You plan your risk appetite, market risks, the tenure of the plan, and the initial derivatives you may want to invest in a financial plan. Typically, you cover all of this in your investment vehicle.

And, when you have a proper structured products cheat sheet in place, you leverage how to proceed further with your investment or wealth manager. Above all, cheat sheets can also be downloaded online for free. 

Let us further deep dive into what investment strategies or risk factors you must include while preparing your cheat sheet:

  1. Analyze your goals vs. risk appetite

You can write down the goals you may want concerning your structured product selection. Do you want to get yourself a brand-new home? Are you going to plan a vacation trip to Europe two years down the line? Or, are you going to fund your daughter’s college education 10 years down the line? Or, are you going to plan an early retirement?

Depending on your near future goals, you can choose the investment portfolio you want. You can also state the buffer amount you may need to borrow to fulfill your financial goals. Outlining the performance of an underlying asset or basket of securities provides you with the ability to customize investment plans. 

S NoGoalsRisk AppetiteInvestment Horizon
1Going on a dream vacationHigh5 years
2Buying a carMedium3-4 years
3Saving for RetirementMedium to high25 years
4Saving for a houseHigh15-20 years

2. Choosing the products wisely

    You can choose products that match your risk appetite. It can be a structured product that has a principal amount plus a payoff. After all, structured products are pre-packaged investments!

    Or, it can be a diversification of asset classes. Otherwise, it can be principal protection investment bonds. Or, you can opt for structured products that come to you with attractive returns schemes and are also insured by the FDIC. You can also choose mortgage-backed securities as a part of your investment plan.

    You can approach a financial advisor or an investment manager to help you allocate funds across optimized baskets as you do not want to lose your money or suffer cash flow delinquencies.

    This can be your cheat sheet based on Structured Products on customized risk-return criteria as stated:

    S NoFinancial ProductsRiskReturns
    1Asset funds like equities, futures or optionsHighHigh
    2Structured NotesHighMedium as the notes are linked to the underlying asset’s performance
    3Structured ProductsHighMedium
    4Debt allocation (Interest backed bonds)LowMedium
    1. Creation of the plan

    You may have to combine both the cheat sheets. You analyze your goal Vs risk appetite and include the investment scheme. This would be your risk allocation plan. Let us see how this can be done:

    S NoGoalsRisk AppetiteInvestment HorizonFinancial products
    1Saving for a down payment on a houseHigh25 yearsGovt bonds
    2Buying a brand-new carMedium4-7 yearsAsset allocation
    3Funding college fees High20 yearsBonds/ FDs
    4Dream holidayHigh6/7 yearsHigh-value structured deposits


    4. Determining the risk allocation portfolio

    Once you have zeroed in on an investment portfolio, you must also determine the risk allocation between your funds and your assets. You may not want to put all your eggs inside the same basket. Therefore, you must ideally create an optimal balance between investing your funds into assets or investments and debt obligations. 

    Assets include equities, futures, options, high-value currency coins, and commodities while debts include mortgage bonds, fixed deposits, and other traditional financial instruments. Include stuff that defines key terms to make things easier.

    Risk allocation portfolios can help ascertain the risk value that is spread over and you must invest in those financial instruments that can guarantee you a slow and steady rate of income. These are debt funds like mortgage-backed schemes, insurance schemes, or fixed deposits. Here, in a debt obligation, you have better chances of getting your capital back. However, the plan spreads over 10-25 years. The volatility in a debt market is relatively lower.

    In the case of asset allocation like stocks, futures, or options, you may earn higher rates of return. However, the risk associated with losing money is also high as the capital markets are highly volatile. Investors may have to keep track of the same.

    Here is the cheat sheet about the same:

    S No GoalsRisk AppetiteInvestment horizonIdeal portfolio
    1.Wealth accumulationHighOngoingHigh risk: Stocks, equity, mutual funds, and small-cap funds
    Low Risk: Bank Fixed deposits
    2.Tax-savingLow to High15 yearsHigh risk- Structured notes/ Asset allocation
    Low risk: 
    Govt or Mortgage bonds
    1. Finally putting everything together

    Therefore, you create cheat sheets by writing your goal plan. You then assess what the risk appetite is. You further move on to create a plan towards the distribution of investment plans that tally with your goals and risk appetite.

    Finally, you put everything together by deciding on which is a plan that involves a high-risk category and allows you to achieve your financial goals and which investment plan is a low-risk category that allows you to achieve your goal plan without losing your initial principal amount. 

    This way, you put everything together and start your investment plan by opting wisely. 

    Why do you need structured products cheat sheet before you plan to invest?

    You need structured product cheat sheets for the following reasons:

    1. Get better clarity before you start investing

    Structured products refer to a cluster of investments that use a wide range of financial instruments. You have many structured products that include hedge funds, debts, bonds, mortgages, equities, indices, futures, options, and high-paying currencies. The complexity of receiving an optimal return on products may also differ from one plan to another. Therefore, when you create cheat sheets, you understand how structured products work. Well-defined cheat sheets include the value of the underlying assets, valuation of interest rate, and liquidity.

    1. Getting a better understanding of your risk appetite

    The creation of cheat sheets based on risk appetite helps you arrive at an investment plan wherein you optimize your financial resources carefully and efficiently. When you link a goal with a risk appetite and also include high-risk options and low-risk options, you weigh the pros and cons of each financial instrument diligently. Therefore, you would not fall into the risk of investing in the wrong plan. Investing in structured products becomes way more hassle-free.

    1. Helps you determine a quicker action plan

    When you create cheat sheets considering every point of view, you can build a quicker action plan and you may feel free to discuss this with your investment allocations manager. This way, you can build an action plan and start saving funds accordingly. 

    1. Wrong moves can be avoided

    The creation of structured product cheat sheets can help you stay away from wrong moves after all

    Some of the structure notes may not offer you even the principal value of the fund and you do not want to make wrong moves and lose your money after all. 

    Similarly, when you invest only in equities or shares backed by call options and the markets are highly volatile, you risk losing a lot of money. Your cheat sheets therefore help you arrive at the correct moves with a dose of 

    1. Planning
    2. Organizing
    3. Strategizing
    4. Executing

    Types of Structured Products

    Having understood the importance of structured product cheat sheets and learning how to create simple sheets, you may want to know what the different types of structured products are. This way, you can assess returns based on the performance of what investors receive. A good selection of financial instruments through cheat sheets helps mitigate the level of risk of losing your capital investment.

    1. Zero-Coupon Bonds

    You may buy zero coupon bonds at 80% of their maturity value. This means the bonds are purchased at a 20% discount over their actual value. The original issue discount rates are calculated at the beginning itself. 

    Towards maturity, you can realize 100% of the investment bonds. This is a lucrative structured product you can go in for. Retail and institutional investors can purchase zero-coupon bonds. Coupon payments are also made to investors from time to time.

    1. Structured Notes

    To mitigate the risk of losing your investment value, the note comprises a fixed debt component linked to an underlying asset like equity, stock, or futures. You have a wide range of structured notes to choose from and you can opt for one that matches your risk appetite. 

    1. Capital Protection Bonds

    Capital protection bonds help you get your principal money back even while the market conditions are adverse. Even though the rates of return are not higher, you at least do not lose your principal money. Knowing the maturity date of bonds can help you further in the process.

    1. Yield Enhancement Bonds

    The rate of returns for yield enhancement bonds is higher. However, you place bets against the market conditions. When the investment or asset doesn’t reach the value, you end up losing your entire investment. You may not be insured against principal protection with these bonds.

    Conclusion

    We all know how US-originating Lehman Brothers filed for bankruptcy owing to a lack of liquidity to sell exchange-traded security instruments or allow investors to have a return of principal from their cap portfolios. This is a classic example of how product issuers may lose or may impact bullish or bearish trends of the equity markets.

    Therefore, investors must opt for mortgage-backed securities or ETF instruments by seeking capital-related key information about financial products. This is where you need cheat sheets or case studies that provide information on the wrongdoings of low-performing product issuers or companies.

    Preparing a cheat sheet is the first and primary step that needs to be performed by first-time or newbie investors before they start operating on their investment plan. Terms like structured notes or products can be confusing initially while cheat sheets help you get key features of every type of debt instrument or derivative securities.

    Cheat sheets provide a better degree of clarity and conciseness on how an investor must choose a product that fulfills his wealth obligation. At the same time, these sheets also help you assess your risk appetite effectively. 

    You can prepare Excel sheets and include asset-backed securities that auto-calculate the stable returns you may receive at the maturity period of your investment plan. 

    And, you have your very own asset performance investment portfolio ready for use.

    Ready to take action?

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