In December of 2023 I wrote an article about a structured note issued by Chase Bank that tracked the S&P 500 Futures Excess Return Index (SPXPF) The index is highly correlated with the S&P 500 Index, but it tends to slightly underperform when interest rates are higher and slightly outperform when index rates are lower.
The terms of the note were as follows: the five-year note will mature at 200% of the gains of the S&P 500 Excess Return Index However, at the end of five years if the index is lower, the index will mature at par provided the index was not lower by more than 20% If the index is down by more than 20% the note will mature at par minus any loss of more than 20%.
If the index closed lower by 25% five years from the date of issue, a $100,000 investment would mature at par minus 5% or $95,000. However, if five years from now the index was up by 50% the note would mature with 2 times the gain or a 100% profit This note was issued on December 15, 2023.
Since that date the S&P 500 was up 17 91% through July 22, 2024 and SPXFP was only up 14.86% since interest rates are relatively high and the index slightly underperforms when rates are higher However, the note has an intrinsic value of up 29 73% which is much higher than the S&P 500 since the note tracks the index by 200% It is rare to find an investment with below average investment risk and above average expected return.
If you subscribe to the school of buy and hold this could be a way to enhance returns Although this note will outperform the S&P 500 when the markets are going up, there are drawbacks. This note is subject to the credit risk of JP Morgan If JP Morgan goes out of business, the investor could lose principal. The note does not pay dividends and investors will owe capital gains at maturity unless the note is held in a retirement account.
Sources: Yahoo Finance & SPGlobal
Singer Wealth Advisors is an SEC registered investment advisory firm Registration with the SEC does not imply a certain level of skill or training. Discuss with your financial/tax professionals before investing Past performance does not guarantee future results Material provided for informational purposes only
Accredited Investors
There are many investments that require participants to be accredited investors Individuals with a net worth of more than $1 million (excluding primary residence) or an annual income of $200,000 or $300,000 for married couples are considered accredited investors by the SEC. The idea behind requiring this threshold is to limit certain investments that are more sophisticated to investors with greater financial acumen while shielding less experienced investors from investments that they don’t understand While it seems like an inexact method of determining one’s financial acumen, those are the current rules that were established in 1982
The good news is that back in 1982 only 1 81% of investors qualified as accredited investors, meaning that most investors were limited to cookie cutter portfolios consisting of stocks, bonds and mutual funds. In 2022, because of inflation, 18.5% of American households qualified. This means that many investors now have access to a wide range of alternative private investments like private equity, private credit, and private real estate that were previously reserved for the ultra-wealthy or institutional investors.
The three private asset classes that I just mentioned have all outperformed stocks and bonds over various time periods Some investments are considered even more sophisticated and require investors to be qualified purchasers
Qualified purchasers are defined under Section 2(a)(51) of the Investment Company Act of 1940, and the requirements are generally more stringent than those for accredited investors Individuals must own at least $5 million in investments, either individually or jointly with a spouse Trusts and other entities not formed for the specific purpose of acquiring securities must own at least $25 million in investments.
The higher thresholds for qualified purchasers reflect a greater level of financial sophistication and capacity, making them eligible for more exclusive investment opportunities, such as certain private investment funds that are exempt from registering as investment companies under the Investment Company Act.
In summary, while both accredited investors and qualified purchasers represent sophisticated investors, there are many attractive investment opportunities available to investors in both groups that weren't available even 5 to 10 years ago
Singer Wealth Advisors is an SEC registered investment advisory firm Registration with the SEC does not imply a certain level of skill or training Discuss with your financial/tax professionals before investing. Past performance does not guarantee future results. Material provided for informational purposes only
How to Borrow at 2%
As we all know, the Federal Reserve has been keeping interest rates high to fight inflation in America Currently the cost to borrow is about 7% to 8%
What many borrowers do not know is inflation has not been equal in every country. In fact, some countries are not experiencing significant inflation and their interest rates are therefore much lower than ours. In Switzerland inflation is only 1.5%. I recently moved some of my investments to a Swiss bank for two reasons
First, I wanted to diversify country risk. If things ever go south in this country, I will have some money in another country and could quickly move assets there Secondly, and more importantly, the Swiss National Bank (Switzerland’s Federal Reserve) just lowered short term interest rates to 1.25%. That means I can borrow in Swiss Francs at a little over 2% per year with my investment account serving as collateral
Anyone that has any outstanding loans in the U.S. at 7% or 8% may want to consider this as an alternative By borrowing in Swiss France at a little over 2% and paying off more expensive debt, borrowers can save a lot of money. Even if you don’t have any debt, you could borrow against your investments in Switzerland at a little over 2% and use the proceeds to buy US Treasuries yielding over 5% It is truly an arbitrage opportunity
For U S citizens, all interest and capital gains will be reportable on their tax returns regardless of in which country the investments are held There is one thing borrowers need to be aware of, when you borrow money in Swiss Francs, you need to convert U.S. dollars to Swiss Francs.
At the time you pay off the loan, you need to convert the Swiss Francs back to dollars If the exchange rate moved against you, it will increase the cost of your loan, however if there is favorable movement in the exchange rate the loan will wind up being less
Singer Wealth Advisors is an SEC registered investment advisory firm. Registration with the SEC does not imply a certain level of skill or training Discuss with your financial/tax professionals before investing. Past performance does not guarantee future results. Material provided for informational purposes only
Investing in Artificial Intelligence
By now most people have come to realize that AI’s impact on the world as we know it is going to be tremendous and we are still in the very early stages Investing in NVDIA (NVDA) which makes the chips necessary for AI to run is like investing in the picks and shovels of the gold rush. However, the value of NVDA has already risen dramatically as the demand for its chips continues to surge
On the platform side, one of the most well-known companies is called Open AI which created ChatGPT along with many other applications Although Open AI is not publicly traded, Microsoft (MSFT) is one of the largest investors in Open AI. Microsoft shareholders indirectly own a part of Open AI However, Microsoft is such a large company that this stake in Open AI will be substantially diluted by the company’s other lines of business
Although Open AI is not a publicly traded company that does not mean that you can’t invest in it Scores of private companies that are still in the pre-IPO stage are available to invest in through secondary markets. Accredited investors can invest in companies like Open AI, Space X, Stripe,and Databricks even before they go public This can be one of the better ways to get exposure to pure play AI investing.
With any stock either pre-IPO or post IPO there is a risk that the company’s business plan may not work as expected and the stock could go down. However, with pre-IPO stocks there is far less liquidity than with publicly traded companies Recently companies have been waiting longer and becoming more established before going public Many companies are already generating substantial revenues.
The more established a company has become prior to investing even pre-IPO the less risk there is for a company’s future viability. Investing pre-IPO in general often offers investors more returns than waiting until after a company has gone public to invest According to Investopedia, between 2000 and 2020 the average first day IPO return was 21.11%.
Singer Wealth Advisors is an SEC registered investment advisory firm Registration with the SEC does not imply a certain level of skill or training. Investing in Pre-IPOs or IPOs involves a high level of risk Non-public stocks are illiquid until there is an IPO event, IPOs are not guaranteed Discuss with your financial/tax professionals before investing Past performance does not guarantee future results. Material provided for informational purposes only.
