Continuing my short series on ridiculous investment strategies that physicians use (see my previous blog posts here and here), here's another one that caught my attention during a Financial Strategy Consultation (you can set your's up here: Financial Strategy Consultation) with a physician.
Many investors lost faith in stocks after the 2008 financial crisis, and one physician I know decided that the stock market is “rigged” so it’s better to own hard assets like gold and real estate rather than paper assets like stocks and bonds. So he came across a financial advisor that researches other advisors called commodity trading advisors (CTAs).
The CTAs don’t actually buy commodities like gold and oil. Instead they buy and sell contracts (called futures contracts) on those commodities and make a profit on price changes of those contracts. This physician invested his ENITRE retirement portfolio in a CTA, not knowing they usually charge 2% of the value of your portfolio plus 20% of any gains -- essentially they are hedge funds.
But that hasn’t stopped investors from pouring hundreds of billions of dollars over the last several years into CTAs. Why? Because some of them have mustered up huge gains of +50% or more in a year.
So what’s the problem?
Studies have shown that over long periods of time the returns of CTAs are nothing spectacular. But there are other bigger problems: lack of transparency, conflicts of interest, and the speculative nature of their bets.
Dumping your entire investment portfolio into this is pure recklessness. It's gambling not investing. May as well join me in Vegas and bet it all on red at the roulette table -- at least we’ll get some free cocktails and maybe a buffet.
While the above is one example, when I review many physicians finances during their Financial Strategy Consultation, I almost always discover big mistakes they're making. And most of the time they don't know it until I point it out to them.
So if you want to find out what mistakes you are making with your investment portfolio -- even if you have hired a financial advisor -- I'll let you know if you set up your Financial Strategy Consultation here:
Setu Mazumdar, MD, CFP®