By Howard Haykin

The article offered a sobering tale about an investor who, after getting back into investing following the 2008 market crash, eventually went ‘whole hog’ into leveraged exchange-traded notes, or ETNs. After generating average annual returns of 18% on these complex investments, the investor literally poured his entire $800,000 retirement portfolio into ETNs. Then the coronavirus pandemic hit, and he lost almost every penny.

The current economic downturn that’s likely to continue for some time, has been particularly brutal for structured products: complex instruments that include ETNs, options-based strategies and certificates of deposits whose returns are tied to stocks or currencies. Which is probably why most professional money managers have avoided them – even though banks and brokerages have advertised them as offering payouts that are both steadier and more lucrative than, say, bonds or index-tracking funds.

INVESTOR TAKE-AWAY.    So, unless you’re a veritable investment genius or are privy to material insider information or are sufficiently wealthy that you can withstand significant downturns in the market, it’s probably best to adopt a long-term buy-and-hold investment approach for your financial portfolio. A diversified portfolio of publicly traded stocks, bonds, and/or traditional index-tracking mutual funds and ETFs (exchange-traded funds) perhaps makes the most sense.

Need further proof about the risks of investing in leveraged ETNs and other complex securities? Click on …

• ‘Bankrupt in Just Two Weeks’ – Individual Investors Get Burned by Collapse of Complex Securities [WSJ, 6/1/20 - subsc. reqd]
• Unsuitable Sales of Exchange Traded Products [Financialish, 5/8/20]
• Non-Traditional ETFs: A Firefighter Gets Hosed [Financialish, 11/11/19]
• Important information about leveraged, inverse, and commodity exchange-traded products [Vanguard, 1/22/19]
• Investing in Non-Traditional Funds [Chase, Jan 2020]