Money Management & Retirement Planning Advice by Barry Unterbrink, Chartered Retirement Planning Counselor

Tuesday, September 06, 2011

Market Linked CD's - Insured Safety with a Twist

Market Linked CD's - Want Your Cake, and Eat it Too?
An investors balance of risk of loss and earning income is a very tricky widget to get your hands around now. One idea: Market-Linked CD's, outlined in this space back in late June. This "safe money" alternative offers safety of principal with a stock market 'kicker' - to earn substantially more interest than traditional Certificates of Deposit. I'm revisiting it here since I feel it again deserves some attention for investors of many stripes.

The Market-Linked CD's are FDIC insured and a CD hybrid – offering safety of principal and perhaps some growth. This Certificate of Deposit tracks a basket of stocks (domestic or global) to determine the interest payments to you. There is no set interest rate – the rate will vary year by year. They are offered in 5,6 and 7 year terms. The price performance of a basket of 10 stocks determines the income you receive. Operationally, you add up the price changes on the stocks, divide by 10 and that’s it. There is a ‘cap’ or maximum that you can earn each year for the CD’s term. That’s because the principal of the CD is insured by the F.D.I.C., so certain parameters must be set to protect principal. Once interest is earned, it cannot be taken away. In years that the stocks perform poorly, you may have 0% interest credited. The CD’s are approved for both taxable and retirement accounts such as IRA’s. Low minimums to invest do apply.
Just across my desk, a new CD-linked to a basket of 10 commodities, including copper, corn, silver, sugar and wheat. This could prove to be a great way to combat commodity inflation with no downside risk to your insured deposit. Contact me to determine your specific needs - no obligation to meet with you.
Barry Unterbrink, CRPC
(954) 719-1151

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