Investments & Accounts
If you own a structured income note, you may notice that the value shown in your investment account changes from week to week. A note purchased for $100,000, for example, might temporarily appear on a statement at a value above or below $100,000.
That can be confusing, particularly when the note was purchased primarily for income and the expected coupon continues to be paid.
The important distinction is that the value shown in your account is generally an estimate of what the note may be worth in the secondary market at that point in time. It is not necessarily a realized gain or loss, and it is not necessarily the amount you will receive if the note is held through its stated term.
The ultimate outcome of a structured note is determined by its specific contractual terms. Those terms may include coupon conditions, barriers or triggers, call provisions, the performance of one or more reference assets, maturity provisions, and the creditworthiness of the issuing financial institution.
A structured note's estimated market value can be affected by several factors. The performance of the underlying index, stock, basket, or other reference asset can be important, but it is not necessarily the only factor.
Changes in the index, stock, basket, or other investment linked to the note can affect its estimated value.
Changes in prevailing interest rates can influence the value of the debt component of the note.
Because structured notes typically contain an embedded derivative, changes in volatility can affect estimated value.
The amount of time before maturity or the next potential call date can affect the note's valuation.
Structured notes are unsecured obligations of the issuer. Changes in perceptions of the issuer's financial strength can affect value.
Structured notes may have limited secondary markets. A price shown on a statement does not necessarily mean an investor could readily sell the note at that price.
If the note is held, an interim change in estimated market value does not by itself determine the eventual investment outcome. If the note is sold before maturity, however, its current market value becomes very important because the investor may receive more or less than the original investment — and a secondary market may be limited.
Illustrative example only. This chart does not represent an actual structured note, client account, investment recommendation, or actual or expected performance.
Actual note values may respond differently and can be affected by the note's specific terms, reference asset, interest rates, volatility, time remaining, issuer creditworthiness, and market liquidity.
For an income-oriented structured note that is intended to be held to maturity, short-term changes in the estimated market value may be less important than the provisions that actually determine the note's payments and maturity outcome.
Is the coupon being paid according to the terms of the note? Some coupons are unconditional, while others depend on the performance of the reference asset or satisfaction of a specified condition.
Does the note have a coupon barrier, principal barrier, knock-in level, or other trigger? Understand when that level is observed and what happens if it is breached.
What happens if the note reaches maturity? Can the issuer call the note before maturity? The offering documents determine how and when principal and any final payments are calculated.
Structured notes are unsecured obligations of the issuing financial institution. Coupon and principal payments depend on the issuer's ability to meet its obligations.
Estimated Market Value
Contractual Note Terms
Both sides of the decision, laid out plainly.
For an income note, coupon payments may be a primary objective. However, coupons can be conditional, principal can be at risk, and individual notes can have very different structures.
Even when an interim statement value is not the primary focus, the underlying investment may determine coupon payments, whether a barrier is breached, whether a note is called, and what happens at maturity.
Some notes test barriers only on specified dates, while others may use different observation methods. Never assume that a barrier matters only on the final maturity date.
A note designed to be held until maturity may have limited liquidity. Selling before maturity can result in receiving substantially less than the original investment.
Payments are obligations of the issuer. Even a note whose underlying investment performs favorably remains subject to the issuer's ability to pay.
The pricing supplement, prospectus, and other offering documents control. General descriptions should never replace review of the specific note.
Key takeaway
A structured note's interim statement value should not automatically be interpreted as a realized gain or loss or as the amount an investor will receive at maturity. For an income-oriented note intended to be held through its term, focus on the note's coupon conditions, applicable barriers and triggers, call and maturity provisions, issuer creditworthiness, and the specific terms contained in the offering documents. If the note may need to be sold before maturity, its current market value and liquidity become significantly more important.
Investments & Accounts
Leaving money in the existing plan, moving it to a new employer plan, rolling it to an IRA, or taking a distribution can each have different advantages, costs, tax consequences, and trade-offs.
Read the GuideFamily & Legacy
Beneficiary designations usually control who receives an account — regardless of what your will says. They deserve a scheduled review.
Read the GuideTaxes & Charitable Giving
Moving money from a pre-tax retirement account to a Roth IRA generally creates taxable income today in exchange for the potential for tax-free qualified withdrawals later. Whether it makes sense depends on your tax circumstances, time horizon, and broader financial plan.
Read the GuideNext step
Every situation has details a general guide can't cover. A short conversation is usually the fastest way to sort out what applies to you.
Structured notes are complex securities and involve risks that may differ substantially from traditional stocks and bonds. Structured notes are unsecured obligations of the issuing financial institution and are subject to issuer credit risk. Depending on the terms of the particular note, coupon payments may be conditional, the note may be called before maturity, liquidity may be limited, and investors may lose some or all of their principal. The value of a structured note prior to maturity may be affected by the performance of the reference asset, interest rates, volatility, time remaining, issuer creditworthiness, and other market factors. Any description on this page is general in nature. The applicable prospectus, pricing supplement, and other offering documents govern the terms of each individual note.
This material is provided for general informational and educational purposes only and should not be construed as individualized investment, tax, accounting, or legal advice. Individual circumstances vary, and strategies discussed may not be appropriate for every investor. Wealthspan Investment Management, LLC does not provide legal or tax advice. Clients should consult their attorney, tax professional, and financial advisor regarding their individual circumstances. Investing involves risk, including possible loss of principal.