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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76406  
Subject: Re: Indexed CDs Date: 8/17/2011 12:35 PM
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The one I saw claimed that you could never lose money. If the market went up, you made money. If it went down, your balance stayed the same.

Then in the fine print, it said that your gains were limited to 3% per month. Now looking at the returns for the full months over the last 5 years, we have, in % including reinvestment of distributions form SPY:

6.52
.65
6.38
1.94
-2.71
-10.2
-2.87
-8.86
-22.67
-9.97
16.28
15.38
6.11
5.78
-11.66
11.16
10.76
5.9
.02

So in the most of the months when the market went up, it did much better than 3%, and in fact about half or more is taken out during those good months. Taking that off the top, and using puts to make money during the bad months should yield a pretty good profit for the fund manager.

I did a similar analysis about 4 years ago when the salesman presented me with the deal, and of course I did not buy.

That was at one of those "free lunch" seminars at an excellent and very expensive restaurant, and I went for the meal and out of curiosity. However, even though it was an excellent restaurant, the guys giving the seminar must have gotten a special deal on the rubber chicken lunch.

I really thought that the restaurant had some minimum standards, but I guess I was wrong.
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