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Simply Money

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Are exotic investments better?

Reader’s Question:

I’m 58 and I’ve saved a lot of money. I think maybe things like index funds are too simple for me. Should I start looking at more sophisticated or complex investments?

~Doug T.


I get asked this all the time.

There’s a perception among some folks that you need to “shake things up” once you reach a certain level of savings or investment success.

But that’s a little like changing your golf swing after you’ve just broken the all-time course record.

My experience has been that most complex investment products end up being far more trouble than they’re worth.

That’s because many of the more exotic investments:

  • Are intentionally hard to understand
  • May be impossible to get out of
  • Could contain undisclosed risks
  • Have high, hidden, ongoing fees and commissions

Here are 4 “exotic” investments that might look tempting on paper(or be touted as great options by pitchmen on TV), but which I recommend you avoid.

1) Non-traded REITs

The acronym REIT stands for Real Estate Investment Trust.

Non-traded REITs were originally touted as “safe” and affordable ways to invest in real estate.

For a while, non-traded REITs seemed to be fading, but now I’m seeing them make a comeback.

So, why should you avoid this vehicle?

  • Non-traded REITs aren’t traded on a securities exchange (which means they aren’t bound by the same laws, oversight and regulations as investments that are).
  • The actual share value can be hard to determine (it’s often an estimate).
  • Fees can be as high as 15%.1(This can come right off the top of your initial investment.)
  • They’re “illiquid” (once you buy in, you’re probably stuck for the duration).

2) Structured Notes

A structured note with principal protection is a bond combined with a derivative component to give an investor exposure to another asset. It’s advertised as a way to get all the “upside” of the stock market when it’s doing well, while protecting you when the market drops.

What do they say about things that seem too good to be true?

Structured notes are not nearly as “risk-free” as they sound.

Here’s why:

  • If the issuer goes broke, you can lose all your money.
  • Some versions of this product only offer “partial” principal protection.
  • And if it does include “full” principal protection, your return is usually taxed at ordinary income rates (and not the more favorable long-term capital gains rate).
  • Getting access to your money if you need it can be hard.

Structured notes are so risky that the SEC and FINRA have both issued alertswarning investorsabout their complexity and deceptiveness.

3) Cryptocurrency

Cryptocurrency is a digital form of currency that uses “blockchain” technology and can be traded just like stocks. By now, you’ve probably heard of a few different types, such as Bitcoin, Ripple, or Etherium.

Bitcoin grabbed headlines in 2017 when it jumped more than 1,900% to about $20,000 a coin.2

Everyone seemed to be going Bitcoin-crazy.

But then in the first six months of 2018, the across-the-board values of cryptocurrencies (including Bitcoin) fell by an average of 80%.

In-spite of this, curiosity around cryptocurrencies is again on the rise. In fact, according to Forbes,there are now more than 1,600 different types.

My list of concerns about cryptocurrencies is a long one:

  • They’re still new and unproven
  • There’s very little regulation
  • There’s no traditional method to determine value
  • Some cryptocurrency exchanges are fake
  • Legitimate exchanges can lack security
  • There’s been wild price fluctuations

4) Gold

Granted, gold itself isn’t a “complex” investment. It’s a metal that humans have used for thousands of years.

But all too often, gold is pushed on you by using fear-based marketing tactics.

The goal? To manipulate your emotions and convince you that gold is a “must-have” investment, offering protection from stock market declines, rising inflation, and even the collapse of the economy. 

Don’t be fooled.

While it’s true that gold can be a hedge during bad economic times, it comes with numerous downsides:

  • Gold dealers can charge high fees for coins.
  • Physical storage can be a hassle (and expensive).
  • When the price rises, production rises, and this can saturate the market and quickly drive values back down.
  • It’s considered a “collectible” by the IRS, meaning gains can be taxed at a maximum rate of 28%.


Just because your wealth increases doesn’t mean you should complicate your investment strategy. Some of the most savvy, successful investors I know keep things simple.

If index mutual funds and/or exchange-traded index funds helped get you to where you are today (and it sounds like you’ve done very well for yourself), why change horses mid-stream?

All of us need to be reminded from time-to-time that slow and steady usually wins the race.

No matter what, always make sure you’re working with a full time fiduciary financial advisor.

That’s because he or she is required by law to make recommendations based solely on your best interests –not based on what will make them the most money.

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