Do You Know How Your Alternative Investments Work?
From the Desk of Jim Eccleston at Eccleston Law LLC:
The rapid innovation in the financial field gives investors numerous ways to achieve their goals. However, these new plethora of options have also exposed products hidden risks. For example, investors utilize more liquid alternative strategies than before, but they tend to neglect those products’ intent and success probability.
Short-term traders utilize leveraged ETFs to increase specific exposures. However, trouble arose when investors used that tactic to achieve long-term return. This trouble would have been avoided, if investors, advisors, and issuers did more research on the features of leveraged ETFs.
Another popular product until 2008 was securitized bonds, like mortgage-back securities, which provided borrowers lower financing rates and lenders with low-risk lending opportunities. However, it turned out that if one loan failed, the rest were quick to follow.
Auction rate securities are another product that failed under stress. With those, investors lent money to institutions from Dutch market determined rates. Very few investors inquired into the future of these securities until the market failed in 2008.
The moral of those stories is to always conduct research and ask important questions like: what is this product designed for? How will the product handle various market conditions? The constant innovation in finance will require investors to pay closer attention to their investments.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
Related Attorneys: James J. Eccleston
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