Dreaming Up Investments

Article Excerpt

Many investors assume new investments come into existence to satisfy some genuine investment need — to fill gaps in investor finances that unquestionably need filling. More often, in fact, new investments come into existence much like new hair shampoos and toothpastes. That is, marketing specialists dream up new financial products that they think they can sell. The products have to be legal and have to appeal to the investing public. But they are created and sold for the good of the sellers, not the buyers. Index-linked GICs are a perfect example. Early in this decade, when the Internet-stock collapse was still fresh in investors’ minds, these investments were an easy sell. The sales literature claimed they gave you a GIC-style guarantee of the return of your investment, plus the upside potential of equities, stock markets or commodities. Some investors mistakenly assumed they would get all or most of the upside potential of stocks or commodities. We warned that it just didn’t work that…

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