Do Not Buy List

Do Not Buy List

In my book, Meet Wally Street, I write about the things that you should not invest in. These items are better explained in the book, but I will provide a brief explanation below.

  • Non-Publicly Traded Reits
  • Variable Annuities
  • UIT's or Unit Investment Trusts
  • Stepped up CD's
  • Structured Products
  • Private Placements
  • Promissory Notes
  • Regulation D Offerings
  • Business Development Corporations
  • Exchange Traded Notes (ETN's)
  • Precious Metals
  • Floating Rate Bank Loan Funds
  • Class "A" Shares Mutual Funds
  • Class "B" Shares Mutual Funds
  • Class "C" Shares Mutual Funds

  • Non-Publicly Traded REIT's

    These investments are perfectly legal to be sold, but in my opinion, this is one of the worst investments that you can ever invest in. These are investments sold by Wall Street brokerage firms. They were created to benefit those firms, not you.

    Right off the get-go, you are down 11 - 13% from day one of your investment. This means you are in the hole on day one by this amount. Feeling good about this yet?

    The General Partners control the investment, not you. They can roll you up into another Non-Publicly Traded REIT anytime that they want to. This often happens when they spend all of your money. They roll up your crappy REIT into another crappy REIT to hide the truth. That 10 year time horizon the broker promised you where you would go public and reap the rewards, suddenly got pushed back another 3 or 4 years. So, it is 14 years now before you can get half of your money back. Oh, they didn't tell you that you might only get half of your money back? That's really not a problem is it? You've got all the time in the world, right?

    Variable Annuities

    Variable Annuities have high annual (did I say annual?) expenses that can run on average around 2.6% according to Morningstar. When your broker tells you that you need to add some riders to it, then this might add another 1% in annual expenses to it. Well, you might be thinking that you have a guaranteed rider that pays you an income. Okay Sherlock, put your thinking cap on for a minute and forget what the broker told you. There is this thing called Internal Rate of Return. Don't make me laugh, but just for fun, let's say your broker invested it in the variable annuity sub-accounts and you made a gross 8% return. However, when you subtract out the 3.6% in annual expenses, then you are left with a 4.4% return. Of course, an 8% return year after year is easy to make in a variable annuity, isn't it? Your broker probably told you that you could make 10% per year on average. Sadly, you are wearing a ball and chain around your neck in regard to these investments with that 3.6% in annual expenses. Oh, I almost forgot. They have surrender penalties that might start as high as 10% and then last for 7 to 10 years or more. If you put $200,000 in a variable annuity, then that is $7,200 per year in expenses, not to mention the commissions you paid to buy it. Not so great of an investment now that you think about it, is it?

    Hey, I wonder. Did your broker tell you that if you really wanted to buy a variable annuity, then you can get one that only charges $20 per month instead of 3.6% in annual expenses? On a $200,000 investment in a variable annuity that works out to $7,200 versus $240 in annual expenses. See the difference? Further, did your broker also tell you that you can buy a variable annuity that doesn't have any commissions or surrender charges? If you really want to see them squirm, then ask them why they sold you one with commissions and surrender charges instead of one without. Of course, the main question to ask is "Whose idea was it to buy a variable annuity in the first place?" That's what I thought. I just proved my point.

    UIT's or Unit Investment Trusts

    UIT's are purely and simply a packaged investment product. They have fees of like 2.95 - 3.95% to buy into them, plus annual fees. A typical UIT is one that holds the Dow Jones Industrial Stocks in it. This is 30 stocks. Didn't you know that you could buy an ETF with a ticker symbol of DIA that does the same thing for perhaps $8.95 or less in trade commissions? If you need to sell that UIT, then you are going to have to take a cut to do so. You see, nobody really wants to buy something that they could have just bought the DIA ETF instead for a whole lot less. Therefore, you are going to have to discount that crappy UIT to entice someone to buy it. These products are designed by Wall Street firms to make revenue from you. Don't be stupid and buy any.

    Stepped up CD's

    Stepped up CD's are where banks sell CD's to brokerage firms that have a graded interest rate scale. They may pay 0.25% the first year, 0.30% the second year and 0.35% the third year, 0.40% the fourth year and 0.45% the fifth year. Let's just say that these are crappy investments. You can buy a fixed rate guaranteed annuity that has a 3.5% rate for a similar 5 year period today as an alternative. A Stepped up CD for 5 years pales in comparison to a 5 year fixed annuity.

    Structured Products

    These are another Wall Street creation. In a nutshell, these are similar to UIT's. Instead of buying the boring old DJIA 30 stocks the brokerage firms realized that people got wise to the fact that they could just buy the DIA ETF. Therefore, these Wall Street firms went back to the drawing board. The complicated the hell out of things. They came up with investments like the "21 Month Buffered Return Enhanced Note." Say what? Do you know what that is? Don't bother finding out. It is just a fancy name for something that you can replicate on your own for probably less than $100 instead of the 3.95% in Structure Products commissions. Another product to benefit Wall Street, not you.

    Private Placements

    Most Ponzi schemes originate as Private Placements. Some fool for a financial advisor and I use that term very loosely, is out to convince you to invest with them. They will lie like a dog and tell you that you can get 12% returns. In realty, you are funding their lavish lifestyle instead. You can kiss your money goodbye if you invest in a Private Placement.

    Promissory Notes

    Promissory Notes are a lot like toilet paper. After you get taken to the cleaners, then you might be able to use that Promissory Note as toilet paper, because that is about all the use you will get out it. You will certainly not get your money back. This investment (don't make me laugh) is another favorite of Ponzi schemers. Don't be fooled by the sales pitch for a Promissory Note.

    Regulationg D offerings

    These are Private Placements that may have fancy prospectuses that make you think that this investment must be legitimate. Go back and read what I said above about Private Placements. Don't invest in this garbage. I don't care how pretty the prospectus and brochures look.

    Business Development Companies

    BDC's are a fancy way of saying Non-Publicly Traded REIT. Some of these BDC's don't even have to go through a Wall Street firm to raise money. They just go to social media and the Internet to raise money from unsuspecting investors. Mobile home parks are an example of a BDC. They want to tell you that because the economy is so bad and people cannot afford apartments, that more and more people are moving into mobile homes. They need your money to buy the land to hold all the mobile homes and they are going to charge rent and make millions! Please don't invest in this BDC crap. Whenever you hear the intiials BDC from a financial advisor's mouth, then run the other way.

    Exchange Traded Notes (ETN's)

    These are Promissory Notes subject to issuer risk. See the paragraph on Promissory Notes above and watch what happens to these ETN's during the next major market downturn.

    Precious Metals

    You really, and I mean really have to know what you are doing to invest in Precious Metals. Gold and silver promoters want you to invest your entire IRA in them. You would be a fool to invest your entire IRA in any one thing in the first place, so why would you invest the whole thing in an gold or silver IRA? Would you put your IRA money into one stock? One Mutual Fund? I doubt it. If you are experienced at numismatics, then okay, put a little into gold or silver as a hobby, but do not put your entire retirement account into gold and silver. That would not be very smart.

    Floating Rate Bank Loan Funds

    Floating Rate Bank Loan Funds are something that I hate with a passion. The inner workings of these can get really complicated. They typically include a lot of leverage and they can get creamed in one bad day in the market. I have been around long enough to see it happen. Smacked down over 10% in one day. Yikes!! Your broker will tell you it is a great investment because it goes up when interest rates go up. Don't be a fool and invest in this crap. These have a lot of hidden risk to them.

    Class A, B or C Shares Mutual Funds

    Now tell me again why you paid that 5.75% in commissions on a mutual fund when you could have purchased a comparable No-Load Mutual Fund without any commissions?

    Why did you buy that B shares mutual fund that has a 6 year surrender charge?

    How come you own those C shares mutual funds that have over 2% in annual expenses when you could have bought one that invests in the same asset class with annual expenses as low as 0.10%?

    Sadly, I am afraid you do not have good answers to my questions.