20/80 product offered by my bank

[chang]

My bank offered me the two products shown below. I have asked for more details, but 3% pa for a three month maturity isn’t bad. Moreover, Amazon, Microsoft & AMD and three good stocks that have been beaten down. I’m thinking of taking a flyer with the second one - if I can understand it completely.

/quote/

We have actually two products available.

The first one is:

70% fixed diposit maturity 30.12.2022 interest rate 7%p.a.
30% invested in a basket of three shares: Mercedes, Porsche, Tesla

If at maturity the shares are over the initial strike Price or have fallen a 49% you get paid 7%
If one single share has fallen more than 50% you get this share at the strike Price.


The second one is:

80% fixed diposit maturity 30.12.2022 interest rate 3%p.a
20% invested in a basket of three shares: AMAZON, MICROSOFT, AMD

If at maturity the shares are over the initial strike Price or have fallen a 34% you get paid 6%
If one single share has fallen more than 35% you get this share at the strike Price.

/unquote/

[racqueteer]

I can see why you might be confused! I like the second better, given that it is more diversified in terms of sector(s) involved. It SOUNDS like the 80% gets a 3% return regardless. The equity portion (20%) gets what it gets... UNLESS... The price falls 34% or more (which, at this point seems unlikely); in which case, you get a 6% return on the equity (only?). Everything predicated on a 3-month period (during which a rise in price for equities seems highly speculative)? How are you reading it?

[yogibearbull]

This is similar to indexed-annuities in the US. These may be expensive (although you may not care about that if you like their guaranteed aspects) and there may be surrender charges. Also, once the money is tax-deferred, you are are restricted to tax-deferred exchanges to other vendors.

The US rules may differ from European rules. At least in the US, the insurance/annuity companies try to make initial offers attractive because it is almost captive money.