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Response to Tansy_Gold (Original post)

Sun Mar 16, 2014, 09:30 PM

6. The Wall Street product that could corrupt your investing soul

http://www.theguardian.com/money/us-money-blog/2014/mar/09/unbearable-lightness-options-wall-street-retail-investor?CMP=ema_565

Wall Street wants you to buy options, which are like derivatives with training wheels – and dangerous when mishandled...Let’s be frank: there’s no such thing as an investment product that is absolutely safe. Not, that is, if you want to actually make money on your investment...There are products that add too much risk to our portfolios, even though they’re being offered to regular investors with no special expertise.

The same way the military refers to those outside its ranks as “civilians” and priests call anyone outside the religious order the “laity”, Wall Street also has its name for the kids not in its club: “retail”. If you’re not a financial institution, and you have less than $1m in investable assets, you’re a retail investor.

And if you’re a retail investor, there are some products you should never even think about.

A big one is the category of products that can be lumped together under the label of derivatives, aka what Warren Buffett called “weapons of mass financial destruction”. How you can identify them: most of them are unpronounceable. They range from straightforward options on the S&P 500 index to highly complex structured notes, such as – to pick one example at random – the constant proportion debt obligation or CPDO.

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Tansy_Gold Mar 2014 OP
Demeter Mar 2014 #1
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