Re: thoughts on Merril Lynch notes/my meeting with financial advisor
It sounds like an equity linked note. Merrill Lynch calls them MITTS (Market Index Target Term Securities). It is usually comprised of a zero coupon bond plus a call option on a given index.
Let's say you invest $100. $75 goes toward the purchase of a zero (a bond with the interest coupons stripped out) that matures several years out (redeemable at $100). The other $25 goes toward the purchase of call options. So you are guaranteed the return of your principal plus you can generate some type of return tied to an index depending on the type of options you use.
The way you describe it sounds a little funny, but I wouldn't be surprised if they have structured some type of "market beating" instrument. It might be using leverage of some kind. They can get kind of complicated.
If it were me and if I were risk averse, I would just avoid pretty much anything tied to broad market indices altogether.
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