Exotic Investment Schemes are NOT Always Better

Have you ever met someone who has had the next great investment idea?  It may be a really good friend, perhaps someone that you see on the cocktail party circuit or in many cases it’s your friendly investment advisor, insurance agent, stock broker, financial planner et. al.

I’m not talking about the guy who always has the inside scoop on the latest stock pick necessarily.  No…I’m talking about the guy who in 1991 had the inside track on how to make a fortune in the Russian telecommunications business.  Guess what?? You can be a part of it for only $100,000.

As we’re sort of famous for saying, “That’ll work out good for someone….probably not you, but someone’s gonna make a lot of money”

There Must Be More

Why is it that as human beings we are so hard wired to believe that there’s gotta be something more out there that I don’t know about?  I know this mentality is pervasive throughout humankind and in almost every area of our lives—spouses, jobs, houses, cars…

In particular, I’m more interested in discussing our psychology concerning exotic investments.  Why do we think there’s always some hidden pot of gold at the end of the invisible rainbow?

Among the sea of investment options available to all of us, why do we seek out that “one” thing that no one else knows about?  Could it be FOMO (fear of missing out)?


Don’t let FOMO get you when it comes to investing.  This is a serious problem and unfortunately we’ve seen it more than we should have.

The Psychology of Exclusivity

Brandon and I have witnessed quite a few situations where really smart people are taken advantage of by great marketing.  Now, I’m not sure that the marketers really knew they had great marketing but nonetheless they seemed to be really adept at a few things:

  1. They know that people are emotional creatures and tend to make decisions as such.  It seems that all too often, people just don’t make logical, rational decisions.  At the core of most decisions is some heart string that gets pulled on.  You should always be on the lookout for the emotional hot button when being pitched an exotic investment.
  2. People make emotional decisions but they justify those decisions logically.  Here’s an example:  A lady sees a super pricey rug for her living room in a catalog.  Immediately she wants it…that’s the emotion.  Now, if all she had were a picture and a price, she may pass it up if she’s practical.  But those darn copywriters are good and the copy goes on at great length about the quality of the yarn, the number of knots per inch, how the wool used to weave the rug was only harvested from the backs of free range sheep that were always happy, how many months it takes for one lady to weave one rug and how buying this rug is an “investment” and something that will provide a lasting legacy to her family long after she’s gone.  That’s the little nudge she needs to pull out the MasterCard and act on her emotional impulse.  They didn’t leave the logic up to her. No, the copywriters gave her the logic.
  3. We’ve got a big Ego.  And people who pitch you things, including offshore investments, swiss annuities and 7702 private plans know it.  All they have to do is have you believe that there’s something extraordinary for you to gain by forking over your money.  If they can answer “What’s in it for me?” or even a little deeper “How does this ‘special, super-secret investment opportunity’ boost my self-worth?” they’ve got you in the crosshairs.
  4. Everyone is looking for something.  Wealth. Safety. Glory. Comfort. Love.  Let’s face it, most of us are inherently dissatisfied and spend too much of our lives searching for intangible things.  If a sales person can create a message that fills any or a combination of those intangibles they win.   In our case, wealth and exclusivity are the intangibles.

The reality is that there really are no secret investments that are going to make you a gazillionaire with no risk, unlimited upside and free from taxes.  Those are just unicorns.

When it comes to building assets…less is more.

We’ve worked with more than a handful of people that work in the finance industry where they have access to an unlimited universe of investment options (hedge funds, private equity, etc.). We can tell you this, they don’t invest in complex schemes.  In fact, they really like whole life insurance where they have zero market exposure.

I’m sure you’ve all heard this before but this quote is always worth repeating:

Rule No. 1: Never lose money

Rule No. 2: Never forget rule No.1.  –Warren Buffet

At least that’s what we believe and our experience working with some very successful people has proven this theory to be true.  Sophisticated and complex investment schemes are usually just that, sophisticated and complex.

What’s more, they are obscure and difficult to understand for good reason.  It hides who’s making all the money.

Hint:  it’s not you.

The Tax Man Cometh

Another point worth making when it comes to investment pitches is to beware of the latest and greatest way(s) to avoid paying taxes.  If investment risk makes you squeamish, try going a few rounds with your friendly IRS agent…not fun and potentially very expensive.

We’ve been pitched so many of these ideas over the years and even some that used cash value life insurance as the engine to power the strategy.  Now, of course we’re always on board with a strategy that uses life insurance as that’s our specialty, however, we’re not in favor of marketing strategies that seek to sell life insurance without actually bringing up the fact that it’s life insurance.

To clarify…there are some people who pitch things like 7702 private plans, Bank on Yourself®, Become Your Own Banker©, etc. who sort of gloss over the fact that what you’re actually buying is life insurance.  Yeah, they mention it for sure, but they sort of get around to it after they’ve gotten you emotionally invested in its wonders.

It’s also worth adding that you’ll either pay taxes now or pay them later those are your only two choices.  I have my opinions on both but I’ll reserve those because we’re not in the business of giving tax advice.

In short, complicated plans that seek to gain some sort of upper hand in regards to taxes usually turn to be a headache. Furthermore, it’s usually a number of years later that you realize the plan isn’t going to work out as you thought or as the “advisor” who helped you set it up told you it would. And guess what? That guy, the “advisor” won’t be around anymore (just the way it works) to help you unravel the mess.  Also it’s worth remembering that when tax issues arise—it’s your mess, you’re the one that will be responsible for it.

Leave a Comment