If an investment seems too complicated – It probably is.

by Laura Ehrenberg-Chesler on May 26, 2009

in Crossvault Capital,Investment Strategies

I was recently speaking to an impressive and successful young man who spent a short time working as a broker at a large investment firm.  We talked about the current investment environment, and how so many investors got into trouble stretching for yield or return investing in what were supposed to be safe and liquid investments.

In order to secure an above market yield, investments were made in complicated and/or illiquid securities.  These securities were often too complicated to be properly explained by a professional, and too complicated to be fully understood by an investor. When the markets became stressed, the esoteric and illiquid securities were the first to lose value.  In some cases investor capital was frozen, and with no active market, there was no ability to return investor capital.

 The lesson here is simple:  If an investment seems too complicated it probably is.

If an investment cannot be easily explained or understood, avoid it.

 

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