When To Say No: 7 Investments to Avoid

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When To Say No: 7 investments to avoid

Jeffery Ptak wrote a nice article in the October/November 2013 issue of Morningstar Advisor magazine entitled, “When To Say No” which was subtitled:

A well-designed financial plan can get derailed by the wrong investment. Here are seven things investors can probably do without.

In the article, Ptak described seven investments that investors should probably avoid. Here is the list and a short summary of why you should avoid them:

  1. Alternative Mutual Funds: Given alternative funds’ cost and complexity, they should not form the core of a portfolio.
  2. Income-Plus Strategies: They too often get carried away in their singular quest for yield, stretching into low-rated, long-duration, or illiquid securities that can get crushed when markets de-risk.
  3. Structured Anything: Pricey and often fiendishly complex, structured products are usually bad news for investors.
  4. Guarantees: Investors pay through the nose just because you fear short term volatility.
  5. Non-Traded REITs: They are not worth the price paid, be it from initial and ongoing fees, redemption penalties, illiquidity, or leverage risk.
  6. Closed-End Funds: There is nothing wrong with closed-end funds, but there are now often better investments.
  7. Tail Protection: Adding ballast to a portfolio is fine, but building a portfolio of gold bullion for the end of the world does not fare well in other environments.

Asset allocation doesn’t mean owning one of everything. Some investment products should have an allocation of zero.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)