With so much flotsam littering the investment universe, we usually limit ourselves to pointing you toward the few stocks, bonds and funds worthy of your portfolio. But occasionally there come along new products so hazardous to your wealth that they merit a spotlight all their own.
In our Hall of Shame, we list the most idiotic investment ideas around. Some are gimmicks, others prey on investors' fears, and a few are downright silly.
Single-state stock ETFs
Two years ago, a different outfit toyed with StateShares. It was the same idea, but on a national basis -- that is, a separate ETF for each of the 50 states. It never came to fruition, and just as well: The wheels would have come off the Michigan fund. The New York portfolio would have gone the way of AIG, Citigroup, Merrill Lynch and the rest of what used to be known as Wall Street. Good businesses just aren't this local anymore.
REITs under lock and key
No problem, you may say, given that the shares of traditional, publicly traded REITs crashed during the bear market (along with so many other kinds of stocks). Property values will surely recover, however, and prices of public REITs will rise to reflect those higher values. But private REIT investors get no such benefit unless the trust liquidates -- and even then, double-digit-percentage sales charges and high annual fees will erode the gains. Moreover, many private REITs have suspended all redemptions. That has the regulatory group Finra examining the sale and promotion of these illiquid deals.
Overpriced buffet with Buffett
A smarter way to pick Buffett's brain is to buy shares of Berkshire Hathaway itself. With $1.68 million, you could have bought 17 shares of Berkshire's Class A shares (BRK.A, news, msgs) at recent prices of about $95,000 each. And the folks at Salida would have had enough pocket change left over to cover the cost of traveling to Omaha next May for Berkshire's annual meeting, where Buffett normally waxes eloquent for hours about the markets, the economy and his company.
Currency roulette
This game goes on all day and all night, so you can wake up that much richer -- or poorer. It's like electronic roulette at a casino, except roulette is undeniably a game of chance, while promoters of currency trading claim that "forex" (foreign exchange) involves skill and knowledge. An expert told us that 90% of those who try this stuff lose money. That's unacceptable for something that's held out as an investment rather than a wager.
Absolutely awful
Morningstar has studied past returns of similar strategies and found that managers have come up pitifully short of meeting their lofty goals.
Clipped by hedging
Take the S&P 500 Capital Appreciation fund (SSPAX). The fund is indexed only to the price gains of the Standard & Poor’s 500 Index ($INX), meaning investors miss every penny of the market's dividends. The costs of hedging against the possibility of negative returns eat up a big portion of whatever measly gains you might still be left with -- assuming the people in charge know how to hedge. Plug your ears to this sales pitch.
A bankrupt strategy
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The problem is that "old" stockholders generally get wiped out. Federal-Mogul (FDML, news, msgs), an auto-parts maker that was once in bankruptcy reorganization, is very much alive now. Its stock trades for $12, more than double the $5 it fetched early in 2009. But that's the new stock, issued post-bankruptcy. Those who paid as little as 15 cents or as much as $1.30 for old Federal-Mogul shares in 2006 and 2007 have only warrants that are nearly worthless, table scraps from the bankruptcy settlement. Similarly, you should avoid the shares of the old General Motors, now called Motors Liquidation Company (MTLQQ, news, msgs) as worthless.
Sucker bet on housing
Because of technical quirks, the securities are unlikely to track the indexes properly. Instead, investor expectations for housing values will likely determine how the securities trade. But the timing of the products' launch -- just as the end of the long slide in housing prices is finally coming into view -- and their 1.25% expense ratios are the biggest strikes against this dumb idea.
Raw deal in real estate
This isn't the same as buying a habitable house, a strategy that can work if you know something about being a landlord. We're talking about bricked-up hulks in derelict parts of cities that haven't been livable since the '50s. The Web pitches are enticing -- and the prices are superlow -- but even vacant properties will drain you for taxes, insurance and security.
