nytimes: complex investments prove risky as investors chase

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nytimes: complex investments prove risky as investors chase

Postby grok87 » Mon Feb 11, 2013 12:05 am

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,
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Re: nytimes: complex investments prove risky as investors ch

Postby SSSS » Mon Feb 11, 2013 2:40 am

Investing in cars? :oops:
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Re: nytimes: complex investments prove risky as investors ch

Postby zucckerbugger » Mon Feb 11, 2013 5:30 am

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

http://seekingalpha.com/article/1081411 ... -for-yield
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Re: nytimes: complex investments prove risky as investors ch

Postby Taylor Larimore » Mon Feb 11, 2013 8:30 am

Thank you, Grok.

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

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Ordinary investors in alternative investments

Postby dailybagel » Mon Feb 11, 2013 9:05 am

[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
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Re: nytimes: complex investments prove risky as investors ch

Postby livesoft » Mon Feb 11, 2013 9:20 am

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"
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: nytimes: complex investments prove risky as investors ch

Postby bertilak » Mon Feb 11, 2013 12:47 pm

livesoft wrote: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.
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Re: nytimes: complex investments prove risky as investors ch

Postby chaz » Mon Feb 11, 2013 1:00 pm

Investors should stay the course.
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Re: nytimes: complex investments prove risky as investors ch

Postby Toons » Mon Feb 11, 2013 1:02 pm

Conjures up memories of Limited Partnerships and Dogs Of The Dow strategies :oops:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: nytimes: complex investments prove risky as investors ch

Postby InvestorNewb » Mon Feb 11, 2013 1:12 pm

You would think 1 of the 3 people would have a little common sense... :oops:
Current Holdings: VTI, VXUS, VNQ, VCE (largest to smallest)
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Re: nytimes: complex investments prove risky as investors ch

Postby pkcrafter » Mon Feb 11, 2013 1:34 pm

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
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Re: nytimes: complex investments prove risky as investors ch

Postby Wagnerjb » Mon Feb 11, 2013 2:10 pm

bertilak wrote: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.
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Re: nytimes: complex investments prove risky as investors ch

Postby Beagler » Mon Feb 11, 2013 2:32 pm

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 :D )
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.
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Re: nytimes: complex investments prove risky as investors ch

Postby scone » Mon Feb 11, 2013 3:26 pm

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.

:oops: Fail.
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Re: nytimes: complex investments prove risky as investors ch

Postby nedsaid » Mon Feb 11, 2013 10:41 pm

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

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.
A fool and his money are good for business.
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Re: nytimes: complex investments prove risky as investors ch

Postby Index Fan » Mon Feb 11, 2013 10:53 pm

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.
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Re: nytimes: complex investments prove risky as investors ch

Postby 6miths » Mon Feb 11, 2013 10:55 pm

F-I-D-U-C-I-A-R-Y.
'It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so!' Mark Twain
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Re: nytimes: complex investments prove risky as investors ch

Postby texasdiver » Mon Feb 11, 2013 11:23 pm

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.
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Re: nytimes: complex investments prove risky as investors ch

Postby texasdiver » Mon Feb 11, 2013 11:26 pm

Index Fan wrote:
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.
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Re: nytimes: complex investments prove risky as investors ch

Postby hoppy08520 » Tue Feb 12, 2013 10:19 pm

Index Fan wrote:
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.
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