nytimes: complex investments prove risky as investors chase

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
grok87
Posts: 10512
Joined: Tue Feb 27, 2007 8:00 pm

nytimes: complex investments prove risky as investors chase

Post by 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,
RIP Mr. Bogle.
User avatar
SSSS
Posts: 1914
Joined: Fri Jun 18, 2010 11:50 am

Re: nytimes: complex investments prove risky as investors ch

Post by SSSS »

Investing in cars? :oops:
zucckerbugger
Posts: 23
Joined: Sun Feb 10, 2013 1:38 pm

Re: nytimes: complex investments prove risky as investors ch

Post by zucckerbugger »

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

http://seekingalpha.com/article/1081411 ... -for-yield
User avatar
Taylor Larimore
Posts: 32839
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: nytimes: complex investments prove risky as investors ch

Post by Taylor Larimore »

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
dailybagel
Posts: 553
Joined: Tue Feb 15, 2011 7:35 pm

Ordinary investors in alternative investments

Post by 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
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: nytimes: complex investments prove risky as investors ch

Post by 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"
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
bertilak
Posts: 10711
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: nytimes: complex investments prove risky as investors ch

Post by bertilak »

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.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
chaz
Posts: 13604
Joined: Tue Feb 27, 2007 1:44 pm

Re: nytimes: complex investments prove risky as investors ch

Post by chaz »

Investors should stay the course.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
User avatar
Toons
Posts: 14459
Joined: Fri Nov 21, 2008 9:20 am
Location: Hills of Tennessee

Re: nytimes: complex investments prove risky as investors ch

Post by Toons »

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
User avatar
InvestorNewb
Posts: 1663
Joined: Mon Sep 03, 2012 11:27 am

Re: nytimes: complex investments prove risky as investors ch

Post by InvestorNewb »

You would think 1 of the 3 people would have a little common sense... :oops:
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: nytimes: complex investments prove risky as investors ch

Post by 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
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Wagnerjb
Posts: 7213
Joined: Mon Feb 19, 2007 7:44 pm
Location: Houston, Texas

Re: nytimes: complex investments prove risky as investors ch

Post by Wagnerjb »

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.
Andy
Beagler
Posts: 3442
Joined: Sun Dec 21, 2008 6:39 pm

Re: nytimes: complex investments prove risky as investors ch

Post by 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 :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.
scone
Posts: 1457
Joined: Wed Jul 11, 2012 4:46 pm

Re: nytimes: complex investments prove risky as investors ch

Post by 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.

:oops: Fail.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: nytimes: complex investments prove risky as investors ch

Post by nedsaid »

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.
User avatar
Index Fan
Posts: 2587
Joined: Wed Mar 07, 2007 11:13 am
Location: The great Midwest

Re: nytimes: complex investments prove risky as investors ch

Post by 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.
"Optimum est pati quod emendare non possis." | -Seneca
User avatar
6miths
Posts: 811
Joined: Fri Jan 01, 2010 12:55 pm
Location: Toronto, Canada

Re: nytimes: complex investments prove risky as investors ch

Post by 6miths »

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
texasdiver
Posts: 3935
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: nytimes: complex investments prove risky as investors ch

Post by 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
Posts: 3935
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: nytimes: complex investments prove risky as investors ch

Post by texasdiver »

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.
User avatar
hoppy08520
Posts: 2193
Joined: Sat Feb 18, 2012 10:36 am

Re: nytimes: complex investments prove risky as investors ch

Post by hoppy08520 »

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.
Post Reply