Have a Finance Question? Ask a Financial Expert Online.
Sure, those kinds of hybrid products can make sense ( especially for someone looking for guarantees), just be sure that you understand the ins and out of the contract ... Many time there are TWO THINGS that you need to watch for (1) a "participation rate," which means that even of the S&P 500 rises by say 10% you only get a % of that ... like, if the S&P goes up by 10%, you only make 4% ( IF it does ... if it only goes up by 4, you get 1/2 of a percent) and (2) the guarantee of principal is only for the beneficiary ... rememner. in an environment where we don't even know if the market is going up by 5 % in the nest few years... why would they give you 10%?
Sorry to be a killjoy, but typically, if you want a guarantee... today... the guarantee will not be higher than the product provider, themselves, can get in the market.
Still with me?
Where did you go? I am trying to find out if a CD linked to an index like the Dow Jones or S&P 500, which don't pay interest until you cash it in would be a good idea. Also, do fixed income funds get clobbered when interest rates go up? I am still looking for preservation of capital and some income, with the ability to raise cash in five years.
SO ... sorry ... System is really glitchy tonight
I am trying to find out if a CD linked to an index like the Dow Jones or S&P 500, which don't pay interest until you cash it in would be a good idea ... Yes, as long as you understand that tney NEVER give you all of what they market wne t up BY .. that is they usually have what's called a participation rate, where is the market goes up by 7 you get 4
Also, do fixed income funds get clobbered when interest rates go up? ... Yes, always ... if new bonds are coming out at 5% why would I buy your bonds at 4% ,,, I would but only at a discount that makes my real return 5% ... that's the whole inverse relationship between interest rtes and bonds
I am still looking for preservation of capital and some income, with the ability to raise cash in five years. again, in THIS enviroment... treasurie a 2.73% are the only real guarantee
You may want to look at a 5 year fixed annuity ... I really dont like variable annuities, but again, in THIS environment, these insurance companies are offering some guarantees ton FIXED annuities that are a LITTLE above what treasuries can do ... MIGH be a thought
Here's an excellent article on indexed CD's ... you;ll se ther are no guarantees her either
hope this helps