The Everbank MarketSafe CD

The Everbank MarketSafe CD: A No-Downside, Unlimited Upside Stock Investment

By Dr. Steve Sjuggerud, Chairman, Investment U
Monday, June 27, 2005: Issue #448

A dream of mine for you is finally a reality…

Two years ago at our annual Investment U conference, I approached the CEO of EverBank to create “investment nirvana” a no-downside risk, unlimited upside investment for my readers.“It can’t be done.” That was the usual answer I’d gotten from brokerage firms in the past. My reply was always: “Oh yes it can let me show you.”

I’d show them how to do it. But the brokerage firms were too lazy to bother going through the regulatory process of creating this investment. Plus, the brokers didn’t want to spend the time and money to create it, when they were uncertain about their return on investment. After all, my idea was untested.

EverBank CEO Frank Trotter was different. Frank said, “You’re right Steve, that works. And your readers and my customers would love it. We’re more a bank than a brokerage firm, so I may have to do it a little different than you’re suggesting. But I think we can do it. Let me see what I can do.”

I’d bump into Frank Trotter a few times a year, and I’d always ask, “How’s that no-downside, unlimited-upside product coming along?”

“We’re working on it,” Frank would say – but honestly, I wasn’t sure Was he really working on it? Or was he blowing me off? Now, two years later, it’s here!!!

The MarketSafe CD from Everbank: The Terms of the Deal

Here’s the deal…

Remember, it’s a bank. So the MarketSafe CD Frank Trotter is offering is a 5-year “stock market” certificate of deposit where your worst-case return at the end of five years is a positive 5%. It’s a 5-year CD, with a big upside kicker from the stock market.

So with the 5% minimum guarantee, the downside is even better than “no-downside.” Your worst case is that you’ll actually make money. Now let’s look at the upside.

The upside potential math is a little strange But it works out to earning about half of the profit of the S&P 500 if the market goes straight up for five years. If the market gyrates up and down, or even if it just goes sideways, you’ll do much better than half of the profit of the S&P 500. You could even make more profits on the MarketSafe Certificate of Deposit than you would if you were in the market.

Let me give a few examples of what you could have made in this MarketSafe CD versus the stock market in recent years:

During Down Times:

January 1, 2000 to January 1, 2005
Stock market return: -17.5%
Hypothetical return on the MarketSafe CD: +5% minimum guarantee

During Up Times:

January 1, 1995 to January 1, 2000
Stock market return: 220%
Hypothetical return on the MarketSafe Certificate of Deposit: 110%

During Up and Down Times:

January 1, 1997 to January 1, 2002
Stock market return: 55%
Hypothetical return on the MarketSafe CD: 65%

To explain these When the market went straight up (’95 through ‘99), you’d have made 110% on the MarketSafe CD over those five years – a great return, but only half of the return of the S&P 500 Index in that time.

When the market went down hard (’00 through ‘04), you’d have made a positive return on your MarketSafe Certificate of Deposit. And when the market went up AND down (’97 through ‘01), the MarketSafe CD beat the stock market, with a 65% return versus a 55% return for the overall market.

How The Numbers Are Calculated by EverBank

The best way to understand how EverBank calculates the return you’ll get is by using an example:

Let’s start on January 1, 1997 (the “up and down” period in stocks):

EverBank simply records the value of the S&P 500 index two times a year (every six months) for five years. It then takes the average of those 10 numbers. What you put in your pocket is the difference between that average and the starting value. Take a look:

1/1/1997 – 741 Starting value

7/1/1997 – 891
1/1/1998 – 970
7/1/1998 – 1,149
1/1/1999 – 1,229
7/1/1999 – 1,381
1/1/2000 – 1,469
7/1/2000 – 1,455
1/1/2001 – 1,320
7/1/2001 – 1,224
1/1/2002 – 1,148

Average of the 10 values: 1,224

Hypothetical profit on the EverBank MarketSafe CD: 65%

Who Is the EverBank MarketSafe CD Right For?

If you believe the stock market is going straight up for the next five years, then this thing is not right for you. If the market does go straight up, you’ll only earn about half of the market’s return.

But if you believe the market will go sideways or down over the next five years, the EverBank MarketSafe Certificate of Deposit is a great way to own stocks with no downside risk. As you saw from January 1997 to January 2002 – a time when the stock market went up and down – this no-downside-risk CD would have actually beaten the stock market.

If you don’t want to own any stocks, the MarketSafe CD is not for you. And if you think the stock market is going to the moon, then this CD is not for you. However, if you feel that the stock market will probably simply fluctuate or even go down over the next five years – but you don’t want to be out of the stock market – then the MarketSafe Certificate of Deposit is for you.

The EverBank MarketSafe CD is not exactly what I laid out to Frank Trotter two years ago – but it’s close. Before you invest, make sure you read the terms as getting out before the five years is up, for example, is extremely difficult. Having said that, I’d also like to say “Thanks, Frank!” You stepped up when nobody else did.

At the end of the day, if you feel you absolutely must invest in stocks over the next five years, then this is one very safe way to do it.

Good investing,

Steve

Today’s Iinvestment U Cribsheet

Get more information on the EverBank MarketSafe CD.
One final note for full disclosure, the publisher of Investment U has a marketing relationship with EverBank. But just so you know, there’s no pressure on me from the publisher – I can write about anything I want. As always, I wrote about this to you because I thought you’d like it worst case, a 5% gain in five years, with the possibility of beating the stock market in that time, a la ‘97 to ‘02. If you’ve got to be in stocks for the next five years, this is one safe way to do it.

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