In Baltimore there is an investment firm that has flooded the airwaves with radio and TV shows guaranteeing 7% returns with no downside risk. Those of us who act as fiduciaries to our clients scoffed at these infomercials, but it didn’t take long for our clients to start calling us, asking why they weren’t invested in these can't lose investments. For the record, these “advisors” were pitching different types of annuity products to their unsuspecting clients. If you want to learn more about how these products work (warning: it’s complex), click on this short webinar I created to try to de-mystify these investments.
Getting back to the topic, as clients would call us explaining what they heard, the conversations usually went something like this:
Client: I just heard about these investments that guarantee you get a 7% return OR the return of the market, whichever is greater. Why aren’t we investing in things like this?
Greenspring: Were you listening to the “Money Guys” on TV?
Client: That’s it, have you heard of them?
Greenspring: Yes, but let me ask you a question, “How can someone guarantee an investment return of 7% OR the return of the market, whichever is greater, if guaranteed investments like treasury bonds are earning 2%”?
Client: I’m not sure, but that’s what it is.
Greenspring: I wish it were so, but the one thing I know from working in this field for a long time is that if it sounds to be good to be true, it probably is.
At that point, I would explain the product and how terrible it is. Thankfully, I don’t believe we’ve had any clients buy these products after we explained how they work. As much as we all know deep down that there are no free lunches, I am amazed how many people still want to believe it. Fast forward to today, this investment firm has been permanently barred from the investment advisory business for “fraudulently misrepresenting the risks of their investment strategy”. The old adage about being too good to be true, is proven right once again.
On March 9, 2009 the S&P 500 hit a low of 667 (as I write this it is trading at 2365). It seems like an eternity ago, but I thought it would be fun to pull out the letter we sent to clients on February 26th of that year, just a week or so before the ultimate bottom. While reading the letter I am reminded of the carnage we felt all around us at the time. More importantly, I am proud of the way we counseled clients through the worst investment markets since the Great Depression.
Feel free to click on the link below to stroll down memory lane…
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.