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The Journal of Wealth Management

The Journal of Wealth Management

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Primary Article

Rethinking Principal Protection

David Krein
The Journal of Wealth Management Spring 2007, 9 (4) 62-68; DOI: https://doi.org/10.3905/jwm.2007.674808
David Krein
President of DTB Capital in New York, NY. david@dtbcapital.com
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Abstract

A “principal-protected” note is a common design for structured product offerings. It is often marketed as a conservative and prudent approach to buffer against a complicated or risky market exposure. In practice, a “principal-protected” note is made up of two underlying components: a zero-coupon bond and a call option. Thorough analysis of these notes suggests that investors might benefit significantly from acquiring and managing the two underlying components independently. This unbundled approach likely improves the market and credit risk profile of the strategy, as well as enhances the liquidity, transparency, fee, and tax aspects. Finally, it readily allows for the consideration of alternative tools to best address a particular investor's objective.

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The Journal of Wealth Management
Vol. 9, Issue 4
Spring 2007
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Rethinking Principal Protection
David Krein
The Journal of Wealth Management Jan 2007, 9 (4) 62-68; DOI: 10.3905/jwm.2007.674808

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Rethinking Principal Protection
David Krein
The Journal of Wealth Management Jan 2007, 9 (4) 62-68; DOI: 10.3905/jwm.2007.674808
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More in this TOC Section

  • Measuring the Cost of Risk Reduction in Tax-Deferred Investing
  • Investment Implications of the Estate Tax
  • Wealth Management
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