If you haven’t already, you’ll probably hear our current economic situation compared by some to the stagflation of the 1970s, or crypto markets compared to the tech wreckage of the early 2000s, or the state of our country compared to Japan’s lost decades. which started in the 1990s.
And the media will pick up on these negative cues if our economic turmoil continues to move in the wrong direction.
Unfortunately, the disreputable side of the financial services industry will use these negative comparisons as part of a scare tactic to offer “off-market” investment opportunities as an alternative to “market” risk exposure.
I fear that these financial predators will convince investors to liquidate down markets and move money into “off-market” or “alternative” investments that are illiquid.
Our company refers to these products as “Hotel California” investments, which are easy to get in, but hard to get out.
In addition to being illiquid, these off-market investments typically underperform traditional markets due to embedded fees and under-disclosed risks.
If someone recommends that you get out of the market and put your money in one or more of these alternative long-term investments, keep in mind that in turbulent economic times, it’s usually not a good idea to hold investments that you cannot sell at market price on short notice.
Think back to the Great Recession of 2008, which was the root of a liquidity crisis.
These alternative investments come in many different forms, but generally have common characteristics.
¦ The person who recommends you buy the alternative investment will earn a big commission if you invest in the “off-market” investment.
¦ If you want to release the product soon after purchasing it, you will need to sell it at a discount or pay a penalty for releasing early.
While the risks of stock and bond markets can be destabilizing, the real risks of alternative investments can be greater, although often less apparent.
Remember, no matter what, let’s make sure our money is working for us and not for someone else. ¦
— Chris Vernon is an attorney with the Vernon Litigation Group who represents clients in financial litigation across the United States. He is also licensed as a registered investment adviser. The courts have accepted Mr. Vernon as an expert on investment-related matters as a lawyer and investment professional.