Money Advice

Why ‘sophisticated’ investments aren’t necessarily superior

Posted by The Simply Money Advisors Team on Feb 13, 2019 7:50:18 AM

There’s a perception among some investors that it’s time to shake things up once they reach a certain threshold of savings.

But most complex investment products end up being far more trouble than they’re worth.

This is because of their:

  • Difficulty to understand
  • Lack of transparency
  • Undisclosed risks
  • Hidden (and sometimes exorbitant) fees and/or commissions

Here are five common “sophisticated” investments that might look good on paper, but that Simply Money Advisors recommends avoiding.   

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, and we’re seeing them make a comeback.

Why should you probably avoid this product?

  • A non-traded REIT doesn’t trade on a securities exchange, meaning it’s not bound by the same laws and regulations as other investments.
  • The actual share value can be hard to determine.
  • Fees can be as high as 15%.[1]
  • They’re “illiquid,” meaning you can’t easily access your own money.

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 also protecting your money from any market drops.

But let us be clear. These investment products are not as “risk-free” as they sound.

Here’s why:

  • Getting your money back depends on the creditworthiness of the issuer. If the issuer goes broke, you lose your money.
  • Some versions of this product only offer “partial” principal protection.
  • If it does include principal protection, your return is usually taxed at your ordinary income tax rate (not the more favorable long-term capital gains rate).
  • Getting access to your money when you need it is incredibly difficult.

This investment product is so risky that the SEC (Securities and Exchange Commission) and FINRA (Financial Regulatory Authority) have both previously issued alerts warning investors about their complexity and deceptiveness.


An annuity, in its most basic form, is an insurance product that provides a stream of income for a pre-determined amount of time once you hand over a lump sum of cash.

Sounds pretty straightforward, right?

Unfortunately, over the years, these products have become much more complex, confusing, and misunderstood.

There are now numerous types of annuities, including: fixed, variable, indexed, and so-called “hybrid.”

But we caution you for the following reasons:

  • A salesperson could be recommending an annuity just to receive a commission.
  • They can have fees as high as 3-4% a year.[2]
  • If you want access to your own money, you must pay a “surrender charge” – which can be as high as 10%.[3]

We also want to point out that annuity sales are at their highest levels since 2015, according to The Wall Street Journal. And this growth just happens to coincide with the demise of the “fiduciary rule.”

This rule would have forced every type of broker and advisor to work in your best interest when dealing with your retirement money, including informing you of commissions, incentives, and other conflicts of interest.

But without this rule in place we’re back to the “wild, wild west” in the annuity world, which can lead some salespeople to make unsuitable recommendations and use high-pressure sales tactics.


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

Bitcoin, in particular, grabbed headlines in 2017 when it jumped more than 1,900% to about $20,000 a coin.[4] Everyone seemed to be going Bitcoin-crazy.

But the euphoria was short-lived. 

It’s now trading around $3,600 (as of February 11, 2019).

In spite of this, cryptocurrency’s popularity hasn’t waned. In fact, according to Forbes, there are now more than 1,600 different types of cryptocurrencies available to invest in.

However, our list of concerns about cryptocurrency is a long one:

  • New and unproven technology
  • No regulation
  • No traditional method to determine value
  • Some cryptocurrency exchanges are fake
  • Legitimate exchanges can lack security
  • Wild price fluctuations
  • Illiquid


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

But don’t be fooled.

Many times, gold is sold to you 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 and rising inflation. 

And while it’s true gold can be a hedge during bad economic times, it comes with some downsides:

  • Gold dealers can charge high fees for coins.
  • Storage can be a hassle (and expensive).
  • Doesn’t generate income.
  • Only worth what someone will pay for it.
  • Considered a “collectible” by the IRS, meaning gains can be taxed at a maximum rate of 28%.

 The Simply Money Point

Some of the most savvy, successful investors we’ve ever met keep things pretty simple.

If index mutual funds and/or exchange-traded index funds helped get you to where you are today, why change horses mid-stream?

And if you’re ever pushed to buy a complex investment product, remember: the advisor who’s pushing the product is likely doing so to get a big commission. Instead, always be sure you’re working with a fiduciary financial advisor. 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.







Topics: Investing


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Simply Money Advisors), or any non-investment related content, made reference to directly or indirectly will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, this content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained here serves as the receipt of, or as a substitute for, personalized investment advice from Simply Money Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Simply Money Advisors is neither a law firm, a certified public accounting firm, nor a tax advisory firm and no portion of the blog content should be construed as legal, accounting, or tax advice. Please consult your own attorney, accountant, and tax advisor for legal, accounting, and tax advice. A copy of the Simply Money Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request. Advisory services offered through Simply Money Advisors, a SEC registered investment adviser. Insurance services are offered through Simply Money Insurance Agency, a separate entity from Simply Money Advisors. Simply Money™ and the spiral symbol are trademarks of Simply Money IP Holdings, LLC.

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