Structured Products (Plus Just Keep Buying with Nick Maggiulli) | Rational Reminder 255

Structured products can offer unique investment opportunities and customization but also come with risks and complexities. It is vital to thoroughly understand the product's structure, risks, and potential returns before investing. In this episode, we delve into the value of structured products and recap a past episode about the philosophy of money before continuing our focus on reading and finance by diving into the book, Just Keep Buying by Nick Maggiulli. Nick is a highly regarded author known for his insightful and engaging works on finance and investing. With a passion for demystifying complex financial concepts, Nick has earned a reputation for his ability to present information in a clear and accessible manner. His ability to blend storytelling with data-driven insights made his articles immensely popular among readers of all backgrounds. We discuss the pros and cons of financial products, why investors prefer them, the dark side of structured products, and what investors need to avoid. We recap a past episode with Barry Ritholtz about the philosophy of money and the main takeaways from our conversation with him. Then, we delve into Just Keep Buying and the invaluable lessons and uncover hidden gems it offers readers before speaking to Nick about savings and investing. We discuss the best strategies for investing, how to spend your money comfortably, why you should never wait for the markets to dip, and much more. To learn everything about structured products and valuable insights about saving and investing, tune in now.
Timestamps:
0:00 Intro
3:19 Main Topic: Structured Products
6:07 Background
9:11 Biases
14:12 Complexity
17:57 Empirical Evidence
22:03 Persistence Despite Poor Performance
29:06 Episode 57: 60 Seconds
32:05 Book Review: Just Keep Buying: Proven Ways to Save Money and Build Your Wealth
35:51 Special Guest Nick Maggiulli
58:29 Aftershow
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Book From Today’s Episode:
Just Keep Buying: Proven ways to save money and build your wealth - amzn.to/3qh1cF7
Links From Today’s Episode:
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Cameron on Twitter - / cameronpassmore
Nick Maggiulli on Twitter - / dollarsanddata
Nick Maggiulli - ofdollarsanddata.com/
'The dark side of financial innovation: A case study of the pricing of a retail financial product' - doi.org/10.1016/j.jfineco.201...
'Engineering lemons' - www.sciencedirect.com/science...
'Ex Post Structured-Product Returns: Index Methodology and Analysis' - www.pm-research.com/content/i...
'Catering to Investors Through Security Design' - academic.oup.com/qje/article-...

[@muffemod]

Premium T-shirt is a great idea.

[@robinspanier7017]

47:00 very good point. i used to cut on my spending were ever i could and ofc i was able to invest more.
a few years down the line i managed to 10x my income by doing business and providing what ppl need.
the saved money on food and so on did not move the needle for me at all in the end.
for me having money is not about retirement, i dont care if i have 1million or a billion when retired.
i care about my flexibility. i care about beeing able to do what i love.

[@zo9608]

It's really nice to hear you talk.The guy on the left always makes me want to speak out my opnion lol I dont know why. Structured product as a composed product of securities is a very interesting topics to me. I have never heard this before this video but the some of the interesting parts I got from the video are the phrases that describes people's mindset and behavioural on the market. And I also pretty much agreed on listening on parents' opinion as a second thought lol. As a person who never experiences the serious market breakdown it's hard to imagine what will look like when experience the harsh economic downturn, it's new for me to listen to someone has more knowledge and expertise talking about that.

[@AForEh]

I don’t put them in any of my clients portfolios. I only use a mix of low cost ETFs, and some actively managed funds on the fixed income and international equity side (though I’m sure Ben would disagree with using ANY actively managed product).
But I find some advisors saying that structured notes are a fit for GIC clients, that are in GICs because of risk aversion, not because they need the money at a defined period. So basically you can almost double that client’s yield while providing certainty that their principal will be returned in 7 years. Any thoughts?

[@kosi42]

We're moving closer to a Ben Felix appearance on The Compound & Friends.

[@txn4yt7mc5]

Do you plan to talk about managed futures and strategies involving them? Their return characteristics look interesting but I am sure there is a catch somewhere that I am missing

[@robertwright8844]

I would say the main drawbacks are the same as many alternative investments: higher fees, worse tax efficiency, and less transparency about what you're invested in. That doesn't mean funds like KMLM or DBMF are bad investments, and of course they were great in 2022. In my view, managed futures can be a great diversifier for a stock/bond portfolio for someone who understands the drawbacks I listed.
There's a long thread discussing all sorts of managed futures funds in the Rational Reminder community.

[@darkshadows7570]

Hi Ben, where is the thread of “total cost of ownership” on rational reminder? I cannot find it. Thanks

[@rationalreminder]

community.rationalreminder.ca/t/what-are-the-aum-income-requirements-to-become-a-pwl-client/23516/9?u=benjamin_felix

[@Martin-qb2mw]

You should interview one of these dudes who have come up with 100 different variations of the profitability factor using Deep Learning. Should be interesting.

[@Zadeska]

I love the podcast, but this is the first time I openly disagree with a guest perspective.
Yes, "Personal Finance" is more personal than finance, but I fundamentally disagree with "the problem of having too much money" when you die or the "Die with Zero" mentality. To me, the purpose of having a large nest egg in retirement is so you can pass money down to your love ones and have peace of mind that you won't need money when you're in your 90s and have serious health issues.
Living off your investments by living off dividends or just living off the capital appreciation provides a peace of mind which cannot be replicated by selling down your principle or worrying about whether a market crash will affect your retirement. I want a retirement plan where I can literally say "a market crash will not hurt my retirement lifestyle at all."
Simply put, if I begin retirement with 2 million dollars, I'd rather die with 5 million dollars than die at 0 or close to it.

[@rationalreminder]

That’s fair but an economist would call this a “bequest motive” which different investors will derive different utility from. An investor with no bequest motive would likely be decreasing utility by prioritizing a bequest over current consumption.

[@Zadeska]

​@@rationalreminder Thank you for the reply, but I think there's a disagreement which boils down to personal preference or how one wishes to live their retirement.
I agree that having a large amount of money for family when one dies can have bequest motives. But I don’t think that’s necessarily true.
Would stating "I want a retirement plan which is unaffected by market crashes” have bequest motives?
I would say that the personal peace of mind of withdrawing from an account which goes up (on average) year over year is hard to quantify. I can have non bequest motives and want my bank account to go up every year by getting peace of mind with my investment decisions.
"Dying with Zero" to me is like thinking "damn, I wished I ate more junk food and didn't exercise as regularly" on my death bed. For some that's great, for others, not so much.

[@rationalreminder]

For peace of mind and no bequest motive I think annuities are the clear answer. I do see where you are coming from though.

[@Zadeska]

We can agree to disagree on the value of annuities. I think low cost index funds make more sense (because of the flexibility aspect of them while providing peace of mind), but maybe that's just me. I just have trouble with the idea of "man, I wish I had less money."

[@Zadeska]

But do keep up the great work! I think the interviews are great and thought provoking.