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Where You Shouldn't Invest
 Greg Daugherty, retirement writer for Consumer Reports Money Advisor, wrote of four "iffy" investments in the August 2011 issue.
Daugherty claims, "Unfortunately, given today's sickly interest rates and volatile stock prices, many otherwise sensible people seem to be entertaining sales pitches they would have quickly hung up on in the past. And they're all the more vulnerable when the seller offers soothing assurances of safety."
And no, the picture isn't of Daugherty. It's of my slick ex brother-in-law.
Promissory Notes
These are issued by companies and are often legitimate in the financial industry. But not always. Often sold by insurance agents, who may not know of the fraud, but certainly of the high commission, the fraudulent products promise high interest rates with little or no risk.
Scammers either make off with all your money quickly, or if running a Ponzi scheme, may pay interest for a while. In any case, you lose all principle.
Gold
To hold some gold (not more than 5% is considered safe by financial planners) to diversify one's portfolio is fine. But be careful how you buy!
Investing in a gold mutual fund with Fidelity or Vanguard is prudent. Mining companies may also make sense.
Con artists often convince people to buy gold coins or bullion. Many want the safety of the real thing that you can actually possess in these troubling times! But where to store it safely? That's where you get conned. The gold crooks will offer to store your "gold" for a small sum, usually somewhere you can't get to, such as Europe. It may be quite some time before you find that there was never any gold purchased in the first place.
Structured Notes
These promise what private equity and hedge funds promoted in the aughts. Structured notes are bond/derivative hybrids that guarantee you will receive some or all of your investment back, even if the underlying assets fall in value. These have very high commissions, are extremely complex, and often have unspecified high risk.
Equity Indexed Annuities
Ah, one of my favorites! Supposedly, you receive a fixed, guaranteed rate of return with an additional return pegged to a given market index, such as the S&P 500. That guaranteed rate of return is often four to five percent these days! Where can one get that rate with guaranteed safety? Nowhere! And especially with these babies!
All sorts of reductions to your real return exist:
1. Participation rate: It allows you to recover a certain percentage of the index's gain, often 70%.
2. Index Rate Cap: You may have a limit of say 7% on any gain on your funds. If the S&P 500 gained 25% in a year, you would only be eligible for 7% times that participation rate of 70%!
3. Margin or Spread: The index gain for many annuities is determined by subtracting a margin or spread. This is often 3%.
Thus an S&P 500 return of 25% might be capped at 7%, reduced to 4.9% by the participation rate, then decreased down to 1.9% by the margin or spread. As you can see, in good years for the stock market you would receive an intermediate US Treasury rate.
Dentist Bottom Line: If it seems too good to be true, it most likely is. Be careful with the purchase of any insurance product. Commissions and fees often outstrip any profit.
Stop trying to beat the market! And don't invest in only part of the market. A 50/50 ratio of totally diversified stock and bond index funds gained 4% per year in the "lost decade!" And with no changes made except for yearly rebalancing.
Never invest in any product unless you are sure it's registered with your state and the seller is appropriately licensed.
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