Key takeaways from the week

  • Stocks were marginally higher on the week, ending a three-week stretch of negative returns. The path to these gains, however, was bumpy, as the S&P 500 recorded average intraday swings of 1.1%;
  • Driving this volatility was the Federal Reserve's minutes from its meeting in April. The minutes revealed that the committee thinks it may be appropriate to raise short-term interest rates in June if the labour market continues to strengthen, inflation continues to rise at an annual rate of 2%, and economic growth accelerates in the second quarter; and
  • Moving ahead, markets will continue to fixate on trying to identify when the central bank will raise rates again, which could be an ongoing source of volatility. Don't let large daily swings in the market alter your long-term investment strategy.

"If it's too good to be true...

...it probably is." Remember this old maxim?

Never has this applied more, than to structured products.

 Structured products are investments which are designed by investment banks who are 'too big to fail'. How do we know these banks are too big to fail? The one that did fail and brought about the financial crisis, Lehman Brothers, was stuffed full of structured products.

These investments contain complex financial derivatives and are completely opaque as to the charges contained within the structure. Many examples limit the growth that investors can have, allowing the bank to very specifically manage its risk on the product. They are built for specific terms, normally short investment horizons like 3 or 5 years.  

Your average investor, looking to save their money in a sensible way over the long term should steer clear.

All of these features and complexity are fine if they're being used by institutions looking for specific exposure to certain types of risk. If, however, like most average investors, you want to grow your money steadily over the medium to long term, use a sensible low cost portfolio, matched to your appetite for risk. Do not use an overly complex product with hidden charges, guaranteed to make a bank money over a short period of time.

Admittedly, lots of structured products have amazing sounding names though. Who wouldn't want to invest into something called an autocallable reverse convertible snowball phoenix! Sounds almost too be good to be true.

 

Market data

Equity Indices Value Weekly Change
FTSE 100 6156.32 0.29%
S&P 500 2052.32 0.28%
Hang Seng 19852.2 0.67%
Nikkei 225  16736.35 1.97%
Dax 30 9916.02 0.55%
Shanghai Composite Index 2825.48 -0.06%
Bonds  Value Weekly Change
US 10 yr 1.84% 6.52%
UK 10 yr 1.45% 5.52%
Commodities / Energy Price Weekly Change
Gold $1,250.39 -1.84%
Brent Crude Oil $48.86 2.11%
Currencies Majors Value Weekly Change 
EUR-USD 1.1211 -0.94%
USD-JPY 110.48 1.56%
GBP-USD 1.4516 0.59%
Central Bank  Rate
Fed Reserve 0.50%
ECB -0.40%
Bank of England 0.50%
Bank of Japan -0.10%
Prices as at Friday 20 May 2016

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