investing: what do you think of this?

https://www.everbank.com/investing/marketsafe/commodity-solutions?cm_sp=targetopportunity-_-investing-_-'Marketsafe'


There was a guy on WOR years ago. Sonny Bloch. One of his bits of advice regarding investing was, "If you don't understand it, don't buy it."

I don't understand how they are putting the CD's into commodities but guaranteeing  the value of the initial investment. Even if they are buying "puts" as a hedge, that is one thing. But it is difficult, if not impossible to buy puts at a cost that would allow a profit at the contract's expiration, while protecting the initial investment. 


+! I was going to say too many layers of complexity (and resulting middlemen.)


I went to the web-page.  Many of the sentences had numerals indicating there were footnotes.  There were no footnotes or links to them.  Those footnotes likely relate to risk factors.  Lack of transparency is a huge red flag.

Best I could tell--your money will be locked up for the duration of the CD and, if you are lucky, all you will get back is your principal.  It was not clear whether this was a product of the bank or its brokerage subsidiary.

This bank is not too big to fail.


Thanks for all of your impressions and opinions. I might buy some Canadian dollar CDs since I think it's lower than it should be. But what do I know.


The commodities they reference, WTI crude oil, gold, silver, soybeans, corn, sugar, copper and nickel, are all pretty low right now. Although WTI is up from the low about a month ago. There are so many factors to these investments - how far out are they buying? Then when the contract matures and if the commodities are up, it's going to cost money to roll out to a longer dated month (called a negative roll). If you don't understand this, I would stay away. These are complex. 


There are footnotes at the bottom. You're only getting 70% of the upside. Principal is protected by the FDIC in the event Everbank fails.


All CD's are FDIC insured but that doesn't protect against volatile price swings in the commodity market!!


@lisat, Why not just convert some US Dollars to Canadian Dollars and put it in a safe deposit box? It would still be liquid if you needed it and you wouldn't be locked into a CD.


The guarantee is at least 100% of your investment back at maturity (FDIC Insured) even if the commodities markets are significantly lower. Liquidity between purchase date and maturity date may be limited and your return could be less if sold before then.


lhmirman said:

All CD's are FDIC insured but that doesn't protect against volatile price swings in the commodity market!!

That's sort of the point, this does protect against price swings, but you're giving away 1/3 of your (potential) gains in exchange.


RobB said:
lhmirman said:

All CD's are FDIC insured but that doesn't protect against volatile price swings in the commodity market!!

That's sort of the point, this does protect against price swings, but you're giving away 1/3 of your (potential) gains in exchange.

That's the price of not having to invest in the commodities themselves or futures, where your principal is not protected.


RobB said:
lhmirman said:

All CD's are FDIC insured but that doesn't protect against volatile price swings in the commodity market!!

That's sort of the point, this does protect against price swings, but you're giving away 1/3 of your (potential) gains in exchange.

In exchange for this, your principal is protected. The gamble is 1/3  of possibly good profits in exchange for giving up 2% interest I a traditional CD.


It may be worth it.


If you want to invest in commodities, buy the forward contract itself or the physical commodity (re gold/silver/platinum).  if you want a CD, get a CD.   securities tied to commodities are scams.


Appreciate your analysis of this everyone. @kmk, it is probably a good idea to buy the Canadian dollars and hold onto them.


Robert_Casotto said:

If you want to invest in commodities, buy the forward contract itself or the physical commodity (re gold/silver/platinum).  if you want a CD, get a CD.   securities tied to commodities are scams.

Am I correct that the "in and out" commission is much higher when buying metal than in buying contracts or buying stock in mining companies?


meh. You're indexing to a basket of 8 commodities, and looking for the average return across those eight. The highest return any individual commodity can contribute to the average is 70% (e.g., if the gold index price soars 200%, you still only count gold as a +70% when it comes to calculating your average). 

If it so happens that all eight commodities soar in value, the CD will do great. If the average of the eight turns out to be negative? Well, you just lent EverBank your money interest-free for 5 years. If you want to take a flier on commodity exposure for possible upside, this isn't terrible, but if you're looking for yield, I would probably look elsewhere.


srg227 said:

meh. You're indexing to a basket of 8 commodities, and looking for the average return across those eight. The highest return any individual commodity can contribute to the average is 70% (e.g., if the gold index price soars 200%, you still only count gold as a +70% when it comes to calculating your average). 

If it so happens that all eight commodities soar in value, the CD will do great. If the average of the eight turns out to be negative? Well, you just lent EverBank your money interest-free for 5 years. If you want to take a flier on commodity exposure for possible upside, this isn't terrible, but if you're looking for yield, I would probably look elsewhere.

^ This.


lisat said:

Appreciate your analysis of this everyone. @kmk, it is probably a good idea to buy the Canadian dollars and hold onto them.

The loonie has been all over the map the past year and in particular the last three months.  Playing the basic forex market isn't the most difficult thing, but you're very much not assured of protection if you sell the pair.


Formerlyjerseyjack said:
Robert_Casotto said:

If you want to invest in commodities, buy the forward contract itself or the physical commodity (re gold/silver/platinum).  if you want a CD, get a CD.   securities tied to commodities are scams.

Am I correct that the "in and out" commission is much higher when buying metal than in buying contracts or buying stock in mining companies?


yes, but precious metals are not an investment as far as I see it they're a hedge against inflation and/or total financial collapse.  I don;t worry about the commission nor do I ever plan to sell them.  particularly when buying them in inflated dollars.  



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