A recent article on BenefitsPro reported on MetLife’s recent quarterly loss of $94 million, most of which was attributed to “the declining value of derivatives – financial products whose value is based on the price of another investment.” MetLife has a team of professionals who make their living running numbers and projections, interpreting data and spreadsheets, and generally keeping up with economic and market data. This team missed the mark.
My point here is that investing is a tough game. If the experts get it wrong,
think of how difficult it is for the average consumer. Derivative strategies of
any sort take a great deal of understanding of how the underlying investment works, the strategy purpose, and outside economic forces. And unforeseen circumstances can throw a monkey wrench into the best laid plan. The risk is greater than the reward for the naïve.
The average consumer can do better by sticking to product groups they understand. Stocks and bonds are the obvious, with mutual funds and ETFs close behind. So, no matter how sexy an investment may seem, if you can’t explain it to your grandmother, you shouldn’t purchase it.