What Is A ‘Sophisticated’ Investor?

Everywhere I look in the investment media someone is talking about alternative investments. This is what the sophisticated investor is looking for. Many are still smarting from the tech crash of the early 2000’s and more recently the 2008 housing crash. They feel there must be a better way, at least for sophisticated investors like them.

English: Bernard Madoff's mugshot
English: Bernard Madoff’s mugshot (Photo credit: Wikipedia)

Your wish is my command. The Wall Street bullies have a ‘product’ for every season. You want alternative investments you got them. These alternative investments can include:

  • Managed futures
  • Private equity
  • Long/short ETFs
  • Leveraged products
  • Commodities (including gold)
  • Hedge funds
  • Real estate

Of course, this list is not all inclusive. But the message is clear these ‘products’ are for ‘sophisticated’ investors looking to juice up their returns. The pain of the recent crashes is fresh on their minds and they want to avoid the pain. This is a prime example of gambling and speculating with their investment dollars. This is not prudent investing.

The equity markets include all of the above. The Wall Street bullies are just telling you to overload in a specific market sector. Many of the above are described as inflation hedges. Except when you look closely. The inflation is not nearly as volatile as the alternative asset classes used to hedge it. WHAT???

Predictions and forecasts can all be rationalized after they are wrong. ‘It didn’t happen like I said it would because…column A, column B or whatever’.

Whether you are a ‘sophisticated investor or not working with an investor coach/fiduciary adviser will lead to successful results, long term. Each investors needs to develop their own portfolio and understand the level of risk they are assuming.

Remember Bernie Madoff had hundreds of ‘sophisticated’ investors looking to avoid losses and earn superior returns.

Stop empowering the Wall Street bullies and follow three simple rules of prudent investing:

  • Own equities and high quality short term fixed income.
  • Globally diversify.
  • Rebalance.

Although these are simple rules they have proven very difficult for individual investors to follow, consistently. In most if not all cases it will require the assistance of an investor coach/fiduciary adviser.

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