Word: citibank
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...Citibank has been taking full-page ads for what it calls its Stock Index Insured Account. "With this unique account," runs the ad, "your IRA or Keogh deposit actually earns two times the average percentage increase in the Standard & Poor's 500 Index over a five year term. Yet it's 100% safe...
...course, there's a catch. No way could Citibank actually offer you double the stock-market return with no risk, though its ad and brochure make every attempt to convey that impression. But it's entirely legal, fiendishly clever (in a friendly, relatively harmless sort of way) and just one of the many things to be wary of as we desperately reach for alternatives to the 2.5% they're offering down at the local money-market fund...
Close reading of the Citibank ad tells the tale. But if my friend the Wall Street mogul didn't get it, how many widows and orphans will...
...drops 25% over the next year, then just bounces around aimlessly until the fifth year, when it explodes, gaining back that 25% loss plus an additional, mouth- watering 50%. (These things happen too.) Had someone just bought the S&P 500 and held it for five years -- someone like Citibank -- he'd have got that mouth-watering 50% appreciation plus five years' dividends. Not bad. But had someone rolled his IRA over into Citi's Stock Index Insured Account, he would have got . . . zero. (In calculating the average, the first 48 bad months would have more than canceled...
Naturally, this is not the example Citibank uses...