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Top Ten Unsuitable Investments to Watch Out For
By SHUSTAK REYNOLDS & PARTNERS of Shustak Reynolds & Partners, P.C. posted on Monday, February 6, 2012.
These are the Top Ten Unsuitable Securities Investments to Watch Out For during 2012, as compiled by FINRA. For most investors, these investments may be unsuitable; complex; very risky and not easily understood:
1. Private Placements- Risks- highly illiquid; minimal disclosure; typically no operating history; high risk and speculative in nature.
2. Variable Annities- Risks- Rarely make sense; better to invest directly in the underlying asset class than pay the high fees associated with annuity products. Also, many annuities have long lock up periods and substantial penalties for early withdrawal.
3. Promissory Notes- Risks- repayment of principal is fully dependent on the maker of the note. Chance of full or substantial loss of principal. Often the investment of choice in many Ponzi schemes.
4. Unregistered Securities- Risks- illiquid; no public market; lack of transparency and full disclosure.
5. Non-Traded REITS- Risks- illiquid; no public market. May not be able to sell the investment if money is needed.
6. Life Settlements- Risks- timing of return of capital is uncertain. May have to pay to maintain underlying insurance policies. People do not always die with certainty.
7. Structured Products- Risks- complex; one investment tied to another in a completely unrelated asset group. Better off playing blackjack or betting red or black.
8. Exotic ETF’s- Risks- typically heavy use of margin and shorting. Safer to invest directly into diversified stock funds.
9. Church Bonds- Risks- typically sold to church members. High risk of default and potential loss of all principal.
10. Mortgage Backed Securities- Risks- mortgages pay off at different times; risk of being able to re-invest at acceptable interest rates; weak secondary market; may be difficult to sell these securities; certain tranches are riskier than others.
If you are considering purchasing any of these potentially unsuitable securities securities, or you have bought them and feel they are unsuitable for you, contact Erwin Shustak, Esq., our firm’s managing partner, to discuss your legal options and alternatives.
