Are you wearing one? It’s no secret that the more severe a recession, the more emotional investors become about their money. This is a well-known fact widely used in marketing by clever salesmen. Sad, but true: you are most likely a target for companies pushing “hot opportunities” just to make a dime. If don’t think so, call your commodities broker, your life insurance agent, or your local banker and ask, “Where is the best place to put my money?” Your commodities broker will tell you, “Gold.” Your life insurance agent will tell you, “Life Settlements.” And your banker will tell you, “CD’s.” Of course, they all want to make money. You might already be thinking, “What is wrong with these investments?” Knowing when to run for cover is not always black and white. Just because the investment isn’t an outright Bernard Madoff scam, it doesn’t mean the investment is right for you, right for now, or as good or safe as it is promoted. Let’s take a moment to run through a few of these “hot opportunities.”

 Gold: HOT! HOT! HOT! Touted as the wealth preserver, commodity brokers will tell you it’s going to keep going up. And it might, over a very long term. Remember the simple rule of buying low and selling high? Gold is at a historically high price. So buying now with intention of making a short-term profit? If it were 2001 when gold was priced at a little over $270 an ounce, then selling in 2009 at over $900 an ounce would prove an outstanding investment. When the gold bullion was first available for purchase in 1971, its price was around $200 an ounce. So buying in 2001 at $270 an ounce was definitely low. But gold, as with many other investment holdings, has experienced drastic ups and downs – classifying it as a volatile investment. So if your reason to invest in gold is safety, you may want to think again.

 Life Settlements: Basically, you buy someone’s life insurance policy at a discount of the face value and once they die you get paid. Basic problem: Is the insured healthy? Are you aware that in 2007, approximately 79,000 individuals in the US were 100 years of age or more? Will the insured of you life settlement be one of them? Every year he/she lives, your investment pays the premiums on the policy to keep it in force, decreasing your overall return. Moreover, life settlements are not federally governed and are only governed in 39 states. These can be great investments for some individuals, but you need to be really careful and know what risks you need to be looking for.

 CD’s: You may recall the article we published in January: The Cost of Emotions. We ran through the past performance of CD’s in context with their real rate of return, calculated by subtracting taxes and inflation. Of the 20 years spanning 1988-2007, CDs earned a negative real rate of return 7 years. Of the 13 positive years, they earned less than 1% real rate of return 7 years, leaving just 6 with actual positive rate of return.¹ One of the biggest risks involved in investing is inflation. Don’t forget this.

 With the relentless coverage of the economy and stock market, you are surely frustrated and emotional about your investments. You want answers and you want to know what to do with your money. I don’t blame you. But be careful. Contradictable to what the latest salesman told you, your situation is unique and the answers for you may not be the same for your neighbor. “Hot opportunities,” in fact, may be the last thing you need to pursue.

 So how do find someone to help you discover the answers best for your unique situation and not best for their own paycheck? Next Sunday we will talk about the tidbits to look for, questions to ask and requests to make when you are visiting the idea of making a change.

^1. The CD rates are represented by the Lipper CD rate. CDs purchased for a longer period than 6 months can provide a higher rate of return. Sources: Invesco Aim; Morningstar, Inc; Lipper, Inc; Internal Revenue Service.