I've heard similar radio commercials in multiple states now. A guy says he can teach you how to invest where you'll "get the full return in the good years, but be protected from crashes" (paraphrased). Does anyone know what type of "system" is being hawked right now, or is this not specific enough a question?

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    It would be helpful if you could at least name the company that is putting out this marketing. – Cloud Sep 27 at 8:17
up vote 34 down vote accepted

The one that I have heard of (others may be different) is a form of capital protection investment. The basic premise was that you receive a percentage of positive returns, and lose nothing if there was a negative return. So if, say, the S&P 500 was up 20% over 5 years, then you'd earn 15% on your original investment. If it goes down, you lose nothing. Others may allow for some loss in exchange for more upside, but the loss is limited to, say, 5%.

From the seller's standpoint, they make money if the earnings they keep when the market is up are higher than the losses they have to cover when the market is down. They also require that you keep the investment for a fairly long period of time so their chance of profiting is higher (since the odds of a loss are much lower the longer of a time frame you look at).

The expected return (on average) should be about the same as an annuity for the same period. There may also be significant risk of default if the company is not not backed by a large financial institution.

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    As I mentioned in another comment, many structured Index products can be replicated with options. Of those I'm familiar with, cap is a function of a covered call but the pay out is less than the strike of the CC (insurance company keeps the excess gain in good years). Ins company pockets the dividends. Floor is a function of a long put vertical which indemnifies the investor (and insurance company) for "X" percent of the drop with "X" percent being derived from the width of the vertical. Below the vertical, the investor takes the hit. It's win-win for the insurance company, no matter what. – Bob Baerker Sep 25 at 19:41

I've heard similar radio commercials in multiple states now. A guy says he can teach you how to invest where you'll "get the full return in the good years, but be protected from crashes" (paraphrased). Does anyone know what type of "system" is being hawked right now, or is this not specific enough a question?

The system is:

  • I will give you a broad hint of a method for free...
  • For some money I will almost let you in on the secret...
  • For a lot of money I will promise you exclusive one-on-one support..
  • then after you pay I will describe a very obvious method, that you could have read about in a book in the library.
  • I surely do not know the details of all Structured Index products offered by all insurance companies but I know of some where the investor is indemnified for at least 30% of downside protection (DP) in the value of the investment. AFAIC, the caps for most of these are inadequate. Many of these can be replicated with options. If done by the individual, the cap and/or DP will be significantly larger. I say and/or because you can tailor it for the same cap and get much larger DP or less DP and a larger cap, or a medium additional increment in both. – Bob Baerker Sep 25 at 19:32
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    @BobBaerker I am not sure what this comment refers to – mhoran_psprep Sep 25 at 21:00
  • @ mhoran_psprep 2 - My comment means that not all of the limited risk investment "secrets" that you read about or hear on the radio are the scam that you described. Some are legitimate investment products. – Bob Baerker Sep 25 at 21:32
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    You are free to write an answer. – mhoran_psprep Sep 25 at 22:20
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    DumbCoder - Most of these offers are hype, but not all. "XYZ" insurance company currently offers an index annuity: that will give you the first 8% that the S&P 500 rises in one year (a cap) and will indemnify you for the first 10% of loss. What if for $39.95 I offered you the instructions on how to do this yourself but you would get a 9% cap but with 19% of downside protection? Another benefit would be that you can do it a year at a time whereas the annuity requires a 5 year commitment. Would that be a scheme or would it be selling you advice on how to do a better job investing? – Bob Baerker Sep 26 at 14:32

I'm sure there are hundreds of similar ads at any given time; for the most part, these people sell advice (through seminars, books, or management fees) that gives them more profit than if they simply invested their own money using their own systems. One conclusion you could come to from that fact, is that the systems may not be as surefire as they are advertising.

This doesn't mean that no paid investment advice is worthwhile, but it is a reminder to be careful of those who downplay or 'eliminate' risk, as they are likely to be snake oil salesmen.

One variant I have heard promises "high returns and no stock-market risk". I'm not sure if that is the one you are talking about. If so, you have to pay careful attention to the exact phrasing of the statement: "no stock market risk". Not "no risk".

The particular one I have in mind ran (and I believe still runs) in Southern California, and if I remember right, it is for a company that provides either loans or some other financing to private companies. Either way, your investment isn't traded on the stock market, so they aren't technically lying about the "no stock market risk". The actual risk of such an investment is, of course very high. The borrower may default, or the private company may shut down, and in either case, you'll lose 100% of your investment.

And when a company starts out your relationship with such a misleading pitch, I wouldn't trust them even if the general idea of what they offer was legitimate.

Of course, I've also heard various other investment strategies hawked in radio ads (Gold seems a perennial favorite) but this one seems closest to what you were asking about.

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