thoughts on Merril Lynch notes/my meeting with financial advisor

[SteveOMS]

Most of these products are crazy structured products being offered to investors. Alot of the time the catch is your upside is somewhat limited. Usually the underlying security has to reach a threshold price in order to be in play, while you collect a dividend thats part interest income and part options premium. Never buy a product until you read the prospectus and full understand what it is your buying. For example I own ticker EKE which is a Morgan Stanley structured product that pays 10% interest, but is also tied to the performance of NYX but they also offer similar products tied to indexs.

SteveOMS

[Isura]

It sounds like some kind of corporate note, with an added risk/return. Definitely not thet same as a normal T-bill or w/e. Just stick your money in a money market, or an ishares/vanguard index until you decide how to invest your money.

[laserboy]

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.

[jively]

The two detailed descriptions sound possible on this type of stuctured product. 2 other issues with some of these in the past: 1) It may actually have gain restrictions. If the market is up 20%, this product may go up a maximum of 9% or something like that. 2) The product has a built in maturity that may be 5 years out or more. They are also not very liquid in the secondary market. Thus if you want to sell in 1 years or 3 years, you may end up selling it at a loss.

Ask the advisor for the prospectus. Then read it. Then you might have to read it again. OP is right, risk and reward are always related. You can't get very good results without risk and/or giving up liquidity.

-Tom

[dc_publius]

There is no such thing as free lunch. It this wored as described, every fund manager out there would just buy this product for his fund instead of trying - and mostly failing - to beat the market himself.

Either you are confused or the salesman (aka 'advisor') is BSing you. Or both.

You are 100% correct that there is a very close relationship between risk and reward, and any deviation from that relationship is arbirtraged out.