Managed Futures…Annuities….MLPs…What’s Next?

The Wall Street bullies have a product of the day for every situation. Every week I receive calls from wholesalers to recommend their ‘products’ to my clients. The list has included managed futures, fixed and variable annuities and recently MLPs or Master Limited Partnerships. Each of these ‘products’ feeds a fear of the consumer. After each ‘crisis’ a new ‘product’ emerges and the fad builds until it bursts.

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Currently investors are seeking better yield and safety. They believe the MLP fits the bill. There has been a large number of these MLPs brought to market, most commonly transport and store oil and gas.

One of the most crucial criteria that must be met in order for a partnership to be legally classified as an MLP is that the partnership must derive most (~90%) of its cash flows from real estate, natural resources and commodities.

The advantage of an MLP is that it combines the tax benefits of a limited partnership (the partnership does not pay taxes from the profit – the money is only taxed when unit holders receive distributions) with the liquidity of a publicly traded company.

If you recall in the 1980’s the real estate limited partnership was the product of the day until Congress changed the tax code eliminating the tax benefits.

The results were devastating to those invested in these products. I am not suggesting this situation will repeat but it might.

Each time the stockbroker/salesperson makes a compelling and very convincing reason why this time it is different. This time their product will solve all the investors’ problems. They might even become rich over night.

In many cases the end result is the bursting of the bubble.

The real message is that there is no ‘answer’ to successful investing. You cannot earn superior returns with low or no risk. Of course there are examples of those that do but this a matter of luck and not skill. NO ONE can consistently repeat this success long term.

Perhaps you are actually looking for ways to gamble and speculate with your money. If that is the case buying into these fads may be a way to feed your ego.

However if you are an investor looking for a more secure financial future these fads are NOT for you.

Find an investor coach to help you develop a lifelong strategy. Your coach will guide you in developing a prudent portfolio at an appropriate risk level for YOU. A coach will provide you with the right information for you to achieve your long term financial goals.

Most importantly, your investor coach will keep you disciplined during volatile markets both up and down.

Many investors will watch the financial media or listen to a friend/colleague/relative, where success was found with a specific investment/asset class. Or during market down turns will panic and sell.

To succeed in reaching your long term financial goals start by following three simple rules:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

This and working with an investor coach will lead to a successful retirement or any long term financial goal.

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