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  • bee April 2011
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  • beebee
    edited April 2011
    Hey John,

    Thanks for the links. I was intrigued by the Ever Bank product. The 5 year example they illustrate on their website got me doing a little math. In their example (which I found here):

    It states that they would apply a 5 year cumulative interest of 27.2% to the initial investment. This would equate to five year CD paying 5%. The 27.2% sounds so much bigger doesn't it? I would worry about volatility in the commodities market offsetting positive gains with negative losses which the investor absorbs. Remember, the bank is always taking the gains over 10% while the investor absorbs any losses. What they don't show clearly are the banks profit totals for any cumulative Net Return over 10% which they receive almost risk free.

    In the first year, the bank's average return is 18.4% verses 4.9% to the investor. Year two, it is an astounding 53% for the bank. Because of one loss (in hogs), just 7.1% for the investor. Year 3, the bank nets 83.5% and the investor a mere 7%. In year four, the investor absorbs 5 down market (less than 10%) netting an average for the year of just 0.6%. But, the bank doesn't take that risk. Their only rewarded with the "winning" five segments which net an average return of 69%. The fifth year, the bank almost doubles their money with an average return of 99.7%. The investor nets an average for year five of 7.6%.

    This 5 year scenario would net the bank a cumulative return of 323.6%. At almost no risk.

    The bank's only risk is to return your initial investment. They can accomplish this very cheaply by buying insurance such as options or other financial wizardry products.

    Short version: Watch out!
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