Investors in some structured products are taking the risk of credit default. If a "credit event" happens, they may lose a substantial or all of their principal.
What is the risk of this happening?
The issuer said "We have issued similar products in recent years, and none have not defaulted".
I studied a report from a credit rating agency on the default rates in past years:
* For the past two years, the default rate is small. It is at a historical low level, due mainly to the booming global economy.
* Looking at a longer period, the default rate is higher. It is still small, but not that small.
As the structured products are issued for 5 to 6 years, the risk of a global downturn is "not small". This could lead to a higher default rate.
Lesson: Do not take this risk (as you may not be adequately compensated for it). If things turn bad, you may be in for a big surprise. By that time, you cannot reverse your decision.
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