Avoid The TIAA 4-year Diversified Assets Marketsafe CD

I’ve written about TIAA’s “Marketsafe CD” products, and those issued by Everbank prior to its acquisition by TIAA. I’ve suggested that the offering of these products violates the 1933 Securities Act, and I maintain that position. More importantly, I have always written to advise depositors to avoid thinking of these products as CDs (they should not be called CDs), and I am doing that again here.

The latest product purports to give depositors so-called “safe” exposure to the Brazilian Real, the Euro and gold and emerging market equities. In this case, these assets are all priced using ETFs on a pricing date, and then measured against the price of those ETFs in 4 years. The investor gets back their principal and the weighted appreciation, if any, at maturity. Interestingly, the video, featuring Chris Gaffney, uses the hypothetical appreciation of 6% over 4 years which would underperform by at least half the compounded performance on a 4-year CD (where you can still earn well over 3% per year).

With its past products, TIAA and Everbank provided some rationale for tying their products together. They represented earlier products as a play on oil currencies here and here a play on emerging market currencies here or emerging market equities here or a rise in interest rates here or here.

I am not sure of the rationale for tying together the Brazilian Real, the Euro, gold and emerging market equities. It now seems to be a kind of “we think you’ll like this” type of thing. A prudent investor might look at which of these things they want to own and invest in them though the ETF directly or some other means. For example, my own personal opinion is that while gold and the Euro might appreciate against the dollar over the coming 4 years, the Brazilian Real and the emerging market ETF could easily fall quite severely. I would look at the gold ETFs (IAU or GLD) as one alternative, and interest-earning Euro accounts as another.

As anyone who has invested in any of TIAA’s or EverBank’s Marketsafe products knows, it just takes one nasty thing in the basket to destroy it and to leave you waiting for maturity to get your principal back. Previously, however, TIAA damaged your wealth but did not hit you with a 1099 reporting Original Issue Discount (OID). However, if you read the terms of the latest offering, TIAA will hit you with an OID statement for imputed interest in each of the four years that you are holding this product. While the bank would have had an obligation under Federal Tax law to have reported OID, EverBank did not do this prior to its acquisition and the fact that they are now doing it means that their products go from a dreadful idea to a ever worse one.

Bottom line: Continue to avoid TIAA Marketsafe CDs.