The Good, the Bad and the Ugly

EVEN BAD FINANCIAL PRODUCTS and strategies turn out okay for some investors. If that wasn’t the case, they probably wouldn’t attract enough customers to survive, no matter how aggressively they’re peddled. Still, some are so risky or so costly that the chances of a happy outcome are slim. Want to improve your odds of financial success? Here’s how I would categorize the products and strategies on offer today:

Dangerous

Buying stocks on margin
Leveraged exchange-traded index funds
Day trading
Short selling
Writing naked call options

Dubious

Cash value life insurance
Variable annuities
Equity-indexed annuities
Hedge funds
Market timing
Options trading
Structured products
Load funds
Unit investment trusts
Closed-end funds bought at the initial public offering
Brokers on commission

Proceed with Caution

Actively managed funds
Individual stocks
Bonds bought in the secondary market
Closed-end funds at a discount
Interest-only mortgages
Reverse mortgages
Long-term care insurance
Claiming Social Security early

Promising

Index mutual funds
Exchange-traded index funds
High-yield savings accounts
Certificates of deposit
Treasury bonds
401(k) plans
IRAs
Term life insurance
Rewards credit cards
Conventional mortgages
Home-equity lines of credit
Immediate fixed annuities
Deferred income annuities
Claiming Social Security late

The bottom line: With so many products in the promising category, why risk owning anything else?

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