nytimes: complex investments prove risky as investors chase

[grok87]

http://www.nytimes.com/2013/02/11/busin ... f=business

Mary Beck, a furniture business consultant in Pasadena, Calif., said that in 2008, as the stock investments in her husband’s I.R.A. began to fall quickly, the couple moved $470,000 to a new product recommended by their broker.

While the offering was unfamiliar — part ownership in a fleet of luxury cars — Ms. Beck bought the pitch because her broker had been around for years, and the product offered what seemed to be a modest annual interest rate of 7 percent.

“We knew that 12 percent wasn’t realistic, but 7 percent seemed realistic,” Ms. Beck said. “To us, it was a very conservative way to ensure that we’d increase our savings.”

Soon after they stopped receiving interest payments, the Becks lost their money when the venture went bankrupt in 2012. Ms. Beck and her husband have been reconfiguring their retirement and are planning to work longer.

Stories like this are sad- there but for the grace of God go I.
As i get closer to retirement I may become more susceptible to such scams. I plan to put all my money with Vanguard and credit unions at that point...
cheers,

[SSSS]

Investing in cars?

[zucckerbugger]

"Resist the temptation to stretch for yield" - Larry Swedroe

http://seekingalpha.com/article/1081411 ... -for-yield

[Taylor Larimore]

Thank you, Grok.

Anyone contemplating a higher-yielding, complex investment, should read this New York Times article.

Best wishes.
Taylor

[dailybagel]

[merged from separate thread on same topic - admin alex]

Reminders from a New York Times story: alternative investments often come with highly-touted yield, but it's virtually certain that significant risk accompanies those high yields, even if those risks aren't likewise highlighted. I thought this might be relevant to Bogleheads, because many users might qualify as highly sophisticated investors based on assets/income.

Speculative Bets Prove Risky as Savers Chase Payoff

[livesoft]

At one point in time, were not TIPS a higher-yielding complex investment? And so were VIPERS (now known as Vanguard ETFs).

Perhaps it is not really the complexity, but it is the risk. A better title might have been "Risky investments prove risky despite their complexity"

[bertilak]

At one point in time, were not TIPS a higher-yielding complex investment? And so were VIPERS (now known as Vanguard ETFs).

Perhaps it is not really the complexity, but it is the risk. A better title might have been "Risky investments prove risky despite their complexity"

Good point.

Another possible observation: It is hard to evaluate the risk of complex investments. Perhaps this can be overcome with time. TIPS and ETFs eventually became well-enough understood to be trusted, that is their risks known and judged appropriate.

Or, perhaps purveyors of complex investments can hide unjustified risk behind the complexity.

[chaz]

Investors should stay the course.

[Toons]

Conjures up memories of Limited Partnerships and Dogs Of The Dow strategies

[InvestorNewb]

You would think 1 of the 3 people would have a little common sense...

[pkcrafter]

Regulators across the country are confronting a wave of investor fraud that is saddling retirement savers with steep losses on complex products that until a few years ago were pitched only to the most sophisticated investors.

Anyone else see the irony in that statement.


Paul

[Wagnerjb]

Or, perhaps purveyors of complex investments can hide unjustified risk behind the complexity.

You got it. The complexity makes the investment sound sophisticated. And the complexity can hide the risk for a typical investor. Toss in the greed on both sides - the high fees (cleverly hidden) and the performance/yield chasing - and you have a recipe for investors getting fleeced. Happens all the time, sadly.

Best wishes.

[Beagler]

Good point about TIPS complexity. What's the old adage about not investing in anything you can't explain to a 12 year old. (No, not the kind of financially sophisticated 12 year old that Larry, Taylor and Rick grew up to be )

[scone]

Mary Beck, a furniture business consultant in Pasadena, Calif., said that in 2008, as the stock investments in her husband’s I.R.A. began to fall quickly, the couple moved $470,000 to a new product recommended by their broker.

Fail.

[nedsaid]

That is why they are called brokers. They make you broker.

Evidently the investors were not aware of the risks in the stock market. If they would have just held on to their stocks, it is likely the value of their account would have recovered. The brokers recommendation is just unbelievable to me. For the broker to recomment putting such a chunk of money into a new and unproven product is just criminal. It probably had a very fat commission.

[Index Fan]

Gary Spiegel, 54, a woodworker in upstate New York, was persuaded to buy into three private placements after he grew tired of the volatile stock market and withdrew all of his money in March 2010. Much of that money, $100,000, went into a company that was supposed to produce a bilingual television show, “Hacienda Heights,” while paying a reliable 10 percent interest rate.

“The banks weren’t giving interest, and I was getting turned off by stocks,” said Mr. Spiegel, who says he ended up losing $318,000. He settled a legal dispute with his broker this month, just before an arbitration hearing.

Words fail me.

[6miths]

F-I-D-U-C-I-A-R-Y.

[texasdiver]

So how does one move $470 grand of IRA money into a luxury car business? Do you cash out the IRA and pay the taxes and penalties and invest the remainder? Or is there some company out there who wraps these sketchy sort of investments inside an IRA account? Either way....wow.

And a broker recommended this? Yikes.

[texasdiver]

Gary Spiegel, 54, a woodworker in upstate New York, was persuaded to buy into three private placements after he grew tired of the volatile stock market and withdrew all of his money in March 2010. Much of that money, $100,000, went into a company that was supposed to produce a bilingual television show, “Hacienda Heights,” while paying a reliable 10 percent interest rate.

“The banks weren’t giving interest, and I was getting turned off by stocks,” said Mr. Spiegel, who says he ended up losing $318,000. He settled a legal dispute with his broker this month, just before an arbitration hearing.

Words fail me.

That's a pretty neat trick. Invest $100,000 and lose $318,000. That's a NEGATIVE 418% return.

[hoppy08520]

Gary Spiegel, 54, a woodworker in upstate New York, was persuaded to buy into three private placements after he grew tired of the volatile stock market and withdrew all of his money in March 2010. Much of that money, $100,000, went into a company that was supposed to produce a bilingual television show, “Hacienda Heights,” while paying a reliable 10 percent interest rate.

“The banks weren’t giving interest, and I was getting turned off by stocks,” said Mr. Spiegel, who says he ended up losing $318,000. He settled a legal dispute with his broker this month, just before an arbitration hearing.

Words fail me.

I was thinking the same thing when I read about the woodworker. WTF were you thinking!? You didn't like the volatility of the stock market and you were "turned off" by stocks. OK. So you invest in a soap opera TV series. Yeah, makes sense. It's a shame.