Financial Perspective – Principal-protected notes: balancing safety and growth
An attractive product if you would like to take advantage of the stock market’s growth potential while enjoying the peace-of-mind of knowing that you won’t lose anything on your investment at maturity.
It’s often said that the stock market is driven by two contradictory feelings: the desire of those who invest to increase their wealth, on one hand, and their fear of losing it all, on the other. Of course, as a general rule, the potential to make profits is accompanied by increased risk. When seeking higher potential returns, we must accept the possibility of losses may also be high, at least in the short term.
But is there no way to mitigate these two factors, aiming for a degree of growth while avoiding losses?
If you’ve ever wondered about this, the answer you seek just might be found in an investment solution known as a principal-protected note.
Growth potential with a safety net
Offered by major financial institutions, principal-protected notes are investment vehicles structured around two key components.
The first component serves to guarantee the principal at maturity. It is invested in a fixed income security that, at maturity, will equal the total amount of your initial investment. The second component provides exposure to exchange-traded funds or baskets of securities that have the potential to appreciate in value…