CHECKLIST BEFORE PURCHASE
Before buying a structured product you should check the following:
- Who is the issuer of the placement?
- Is the product capital protected? To what extent?
- What are the fees (arranger fees and commission)?
- What conditions are attached to the return?
- How is the return calculated?
- Look at the draft terms (participation rates, coupons, barriers, etc.).
- Will the product be listed on an established marketplace that you have access to?
- Decide how much you’re willing to invest in the product based on your particular situation.
- Spread the risk by purchasing products with different maturities and returns linked to different markets.
Remember to always read the information regarding the risks in the base prospectus and final terms and conditions before investing.
Will I lose Money?
The most common type of risk is the danger that you will lose money. You can make investments that will ensure that you will not lose money, but you will give up most of the opportunity of a return in Exchange.
For instance, considered government bonds and treasury bills as safe investments with low risk. However, the price of such security is a very low return on your investment. When you calculate the effects of inflation (which typically erodes the value) on investment and the taxes you pay on income, your return would be very low measured in monetary terms.
Will I achieve my financial goals?
The factors that determine if you reach your investment objectives (eg standard of living upon retirement) is simplified: the size of your invested amount, investment horizon (how long until you need to use the capital) and the amount of fees, taxes, inflation, etc.
If you cannot accept a high degree of risk in your investments, you are likely to receive a lower return than described above. To compensate for the lower expected return, you should, increase the size of the amount invested and / or the length of the investment horizon.
Some investors think that a certain degree of risk in their portfolio is an acceptable way to increase the chances of achieving their financial goals. By diversifying, that is, spread the risk in their savings portfolio, with investments containing varying degrees of risk and asset classes, they hope to benefit from a rising market and protect themselves against dramatic losses in a declining market.
Am I willing to accept higher risk?
Each investor must find the risk level that feels comfortable and build an investment strategy around that level (here, you can certainly take the help of a financial advisor). A savings portfolio that has a high degree of risk has the potential for high returns, but it can also fail dramatically.
Your chosen level of risk should be adapted so that you sleep well at night without having to worry about saving portfolio’s daily performance. Of course, an overly conservative approach to risk mean that you may not reach your financial goals.
There is no “right” or “wrong” level of risk – that is to say an individual decision for each investor. However, the investment horizon record, young investors can afford a higher risk than older investors because young investors have more time to recover if disaster strikes. If you, for example, has five years left until retirement, you probably do not take big risks because you will have little time left to recover from a significant loss.