Financial investments: the importance of structured investments

In a situation of low interest rates, which sometimes resemble the remuneration of traditional savings, and an exponential fall in the returns on euro-denominated funds, it is, of course, crucial for a life insurance policyholder to opt for another investment or financial investment solution. This is in order to preserve the value of the capital invested. Offered by banks or other financial institutions, structured investment is currently thriving because it is tailor-made and meets the needs of investors. So, what is the reputation of this type of investment?

What is a structured investment?

A structured investment is an investment combining different types of financial products: the first part, which is simple in nature and is more precisely called the “underlying”, and a second, more complex part that originates from one or more derivative products.

This union gives life to a new type of financial product, which is created for very specific objectives and following a financial strategy, in particular to protect capital at risk during a market downturn.

Structured investment is, in fact, a financial alternative designed to meet the investor’s immediate needs. Also, this investment makes, for example, a fund in euros more attractive for a life insurance policyholder, since it ensures the security of the capital invested with a higher rate of return.

Many investors make use of a derivative investment, generally for two reasons: to have an assurance of repayment of the capital invested in the medium term (the financial institution guarantees the protection and repayment of the capital) or to make their investment more efficient (with an increase in risk).

The advantage of structured investments

Structured investment is a combination of several financial elements. This combination allows a financial institution to offer its creditors a more flexible and tailored risk profile. More risky than a euro fund, a structured investment is however, more remunerated, i.e. the interest rate is higher. In fact, it does not insure the entire capital invested, but protects it in the event of a downturn in the financial markets.

As a result, the investor can earn a better return in periods of rising as well as falling markets, and can earn a better return in periods of rising as well as falling markets. Therefore, there are two alternatives for the applicant: either he opts for capital protection by limiting the risks, or for a total return by opting for a leveraged product.

How important is it to structure your investments?

The most important thing is that the applicant is well informed about the various options for structuring his or her investments. That said, you should seek the advice of a professional investment expert before selecting the right profile for you. It is very important to seek the advice of a professional investment professional to help you understand the functionality of the structured investment you have chosen. On the one hand, the investor, having selected a new profile, can invest in a new, better-performing market. For example, the individual investor will have the opportunity to invest in an emerging market that is normally reserved for institutional investors. Structured investment therefore opens, exceptionally, the door to other options for specific financial products.

How does structured investing work?

It is true that banks and other financial institutions usually offer a guaranteed capital, especially a euro fund. However, these investments are not very successful and therefore provide less value for the investor. How does a structured investment work? Derivative investment is created by combining a bond (where the capital is guaranteed) and a derivative product that allows the investor to invest in the underlying market (the latter provides the option of performance to the whole and of risk).

Using the unpaid coupons from the bonds, the financial institution that creates the structured investment buys options, in order to meet the performance aspect requested by the investor, without risking the capital initially contributed, because this capital is protected by the bond. Tailor-made, or personalized, this structuring, proposed by the bank (as an example), meets the investor’s own needs. In short, multiple scenarios can be envisaged for the benefit of the investor, but also for the bank since the latter also benefits from this structuring.

All in all, this financial product is suitable for an investor who needs insurance on his invested capital, but who wishes to benefit from a more attractive rate of return on his investment, i.e. the performance of his investment. Tailor-made, the financial investment nevertheless differs from a unit of account in the case of life insurance by the guarantee it provides for the capital invested if the market tends to decline. On the one hand, it should be noted that structured investment does not exclude 100% risk.

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