I'm a Financial Advisor: 7 Investments I'd Never Recommend to My Own Parents
Financial professionals get asked what to buy all the time. But the more revealing question may be what they would keep out of their own parents’ portfolios.
That answer can expose the investments they see as too volatile, too complicated or too hard to access for money that may need to last through retirement. Here are seven investments financial experts say they wouldn't recommend to their parents.
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1. Concentrated Holdings in a Single Stock
A concentrated stock holding means a large share of someone’s savings rests on one company.
That risk can be easy to overlook when the stock comes from a former employer or has been held for decades, said Lee Boone, founder of Buckeye Financial LLC.
“Don't get it twisted: familiarity doesn't always equate to safety,” Boone said. “Sequence of returns is real. One bad quarter can do more than dent a retirement, because there's no paycheck coming in to make up the difference.”
2. Leveraged and Inverse ETFs
Putting too much money in one company isn’t the only way a retirement portfolio can get too risky. Leveraged and inverse exchange-traded funds or ETFs, are made for short-term market bets. Leveraged ETFs multiply the stock market's daily moves, while inverse ETFs bet against the market to profit when prices drop.
“I've seen people buy them thinking they're a hedge and end up losing money in both directions,” Boone said. “It’s too much volatility and complexity for someone trying to get their portfolio to behave predictably.”
3. Private Real Estate Funds
Private real estate funds, often called non-traded real estate investment trusts or REITs, can promise income without the day-to-day job of owning a rental.
But they may not be easy to sell when cash is needed, said Ralph Estep Jr., founder of Saggio Management Group.
“The main risk is that these are hard to sell and often come with high fees,” Estep Jr. said. “Retirees may need to change plans quickly, especially for health reasons, but these products don't allow for that.”
4. Hard-To-Exit Annuities
A plain immediate annuity may help a retiree without a pension cover fixed monthly bills.
However, Estep said, surrender schedules and extra riders can turn a useful income tool into a contract that’s difficult to leave.
“What causes the damage is the surrender schedule and the riders bolted onto it,” he said. “You just have to be very careful with annuities. I've never been a big fan of them, but there is a place for them, I guess, in very limited circumstances.”
5. High-Yield Income ETFs
Estep also recommended avoiding investment products marketed around eye-catching yields and big payouts.
“Sometimes, what looks like yield is actually just your own money coming back to you, but you might spend it as if it's income,” Estep said.
That’s the catch with high-yield income ETFs, Estep said. The distribution can look like dependable income even when it does not tell the whole story. A high monthly payout isn’t automatically dependable retirement income.
6. Crypto and Bitcoin
Robert R. Johnson, a finance professor at Creighton University, said cryptocurrency does not belong in a parent’s retirement plan.
He views Bitcoin as speculation, not an investment, because investors can’t use traditional financial tools to determine its value.
“I can think of no worse investment for a retired parent than Bitcoin or any other of the plethora of cryptocurrencies,” Johnson said. “The risk is extremely high when considering speculating in Bitcoin. I say speculating in Bitcoin and not investing in Bitcoin because you cannot invest in Bitcoin, you can only speculate.”
7. DIY Rental Properties
A rental sounds like an excellent investment until an older retiree is dealing with a broken water heater at 10 p.m.
“Someone still has to deal with tenants, maintenance, vacancies, contractors, insurance and emergencies,” said Julian Morris, founder and principal of Concierge Wealth Management.
A rental property isn’t necessarily a bad investment, Morris said. But it can be a poor fit when a retiree needs cash or flexibility for health expenses, home repairs, family needs or normal living costs.
Bottom Line
Financial professionals say the right investment for an older parent isn’t necessarily the one with the biggest payout or most upside. It’s the one that fits the life the money needs to support: accessible, understandable and unlikely to force a difficult decision when circumstances change.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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