Written by Lisa Crowley
Absolute return notes also called index-linked notes, protect your principal at maturity. The note follows an index and then whatever spread it ends at you get that percentage of your note. It does not matter if the index went up or down just as long as it is within the range you will see a gain on your investment. The catch is that if the spread is outside your range then you reap no benefits and your note will be called. When the note is called you get your principal back so you are technically not losing any money.
Yet there is always a price associated to money. Since you are getting your money back in the future it is less than what you put in since time erodes the value of money. You could have used this money and put it in different investments where you earned a profit and not just your principal. This investment of an absolute return note doesn’t have the loss in principal numerical wise but in the actual value the money represents is lower.
In the economic times we are facing right now it is not a bad decision to invest in absolute return notes where you are guaranteed your principal because investors are seeing a negative return right now. It is a safe bet to be guaranteed your principal at the end while other notes don’t have that security.
http://money.cnn.com/2009/02/11/smallbusiness/keep_your_cash.fsb/index.htm?postversion=2009021206
http://www.early-retirement.org/forums/f28/absolute-return-notes-42415.html
http://www.one-financial.ca/en_investment_solutions_guaranteed_absolute_return_notes.asp
Absolute return notes also called index-linked notes, protect your principal at maturity. The note follows an index and then whatever spread it ends at you get that percentage of your note. It does not matter if the index went up or down just as long as it is within the range you will see a gain on your investment. The catch is that if the spread is outside your range then you reap no benefits and your note will be called. When the note is called you get your principal back so you are technically not losing any money.
Yet there is always a price associated to money. Since you are getting your money back in the future it is less than what you put in since time erodes the value of money. You could have used this money and put it in different investments where you earned a profit and not just your principal. This investment of an absolute return note doesn’t have the loss in principal numerical wise but in the actual value the money represents is lower.
In the economic times we are facing right now it is not a bad decision to invest in absolute return notes where you are guaranteed your principal because investors are seeing a negative return right now. It is a safe bet to be guaranteed your principal at the end while other notes don’t have that security.
http://money.cnn.com/2009/02/11/smallbusiness/keep_your_cash.fsb/index.htm?postversion=2009021206
http://www.early-retirement.org/forums/f28/absolute-return-notes-42415.html
http://www.one-financial.ca/en_investment_solutions_guaranteed_absolute_return_notes.asp
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