I want to believe in Unicorns, but their magic is too good to be true.
The same could be said of many investments. I speak from experience, and today I’m sharing some lessons I’ve learned about “alternative investments” that are too good to be true…
My career in financial services began in February 1995, just shy of my 24th birthday. I barely knew what a 401(k) was. Roth accounts didn’t exist yet.
My original title was Financial Representative: my compensation, 100% commission.
Over my career, I’ve held life and health insurance licenses, as well as Series 6, 7, and 65 securities licenses. I spent the first decade working at both public and private broker-dealers and within CPA firms before transitioning to the fee-only model in 2005.
My winding career path exposed me to an astonishing range of investment and insurance products.
From IPO strategies to penny stocks. Structured products to closed-end funds. Hundreds of insurance and annuity products. Equipment leasing, oil and gas, and housing credit partnerships. Crypto. Private REITs. Real estate syndicates. Private lending products. Tactical and strategic allocation models galore.
Most of these “exotic” investments were too good to be true.
Each, however, has a tale (tail?) to tell.
Today, I’m sharing some stories about Unicorns* and five key lessons I’ve learned by studying them.
I want to believe in Unicorns, but their magic is too good to be true. The same is true of many alternative investments. Today, I share some tails from my 30 years of studying Unicorns… Share on X
(* While “Unicorns” is often used in the industry to represent those rare stocks (e.g., Apple) that zoom to the moon, I’m using the phrase to reflect alternative investments that are too good to be true. Work with me here, ok? 😉
1. Casseroles Are Only Good for Eating
At Sunday potlucks back home in the Midwest, I always made a beeline for the casseroles. You could mix a bunch of random ingredients and—voilà—yumminess!
But investing? It doesn’t work that way. The more you mix, the more flavor you lose.
My first encounter with an investment casserole was a Variable Universal Life policy. It’s a life insurance product where you pay higher premiums than term insurance, and the excess gets invested in “mutual-fund-like” sub-accounts.
It was supposed to do everything—provide a death benefit, grow tax-deferred at stock-market rates, and offer liquidity via tax-free loans.
Even at that young and naïve stage, I couldn’t see how it could possibly do all of those things well. The fees were steep, and the risks overlooked. I could see a few narrow use-cases, but they were rare. Needless to say, I didn’t make it to the top-salespeople-trip that year.
My next casserole moment came in 2009. Fear was fresh from the market crash, and along came structured products promising upside potential with downside protection. The recipe? About 80% in Treasuries for “principal protection” and 20% in options for growth.
It sounded clever, so for a short time, we used a ladder of them for some clients’ portfolios. But soon I realized they weren’t doing anything particularly well. Simpler stock-and-bond mixes would have done the job more cleanly and at a lower cost.
After tasting too many versions, I’ve decided casseroles belong in kitchens, not portfolios.
The more a product tries to do, the less it does any of it well.
2. Privacy Is Overrated
I’m all for online privacy. But private investments? That’s another story.
In thirty years, I’ve seen only one end well and hundreds end badly.
Friends investing in friends’ real estate projects. Doctors backing new medical devices. Parents funding their adult children’s ventures. You name it, I’ve seen it.
Take Private Real Estate Investment Trusts (REITs) as an example. These ventures might own real estate leased to big-box stores, apartments, or office buildings. They promise steady income and an eventual IPO to give investors liquidity. The problem? That “eventual” liquidity often never arrives. Investors who divorce, die, or simply need cash can find themselves stuck with shares that take years to unwind.
Private investments also have a way of hiding unpleasant surprises. I learned this firsthand through a Roth IRA investment in a private real estate deal. Everything was humming along until one of the partners—and the project’s key contractor—passed away unexpectedly.
Without a buy-sell agreement, his widow became a co-owner. But she didn’t have the construction expertise to contribute and needed the funds to maintain the family. My friends, the remaining partners, worked tirelessly to salvage the situation, but it ultimately sold at a loss—about seventy cents on the dollar. And because it was inside my Roth, I couldn’t even deduct the loss.
Being publicly traded doesn’t guarantee success, but it at least provides an additional layer of transparency and regulation. Private offerings often lack both.
The risks of opacity persist. The recent bankruptcies of First Brands (an auto-parts supplier) and Tricolor (a sub-prime auto lender) have triggered scrutiny of the private credit and shadow-banking world. And yet regulators are being urged to expand access to “alternative” or private investment products inside 401(k)s.
As Google’s AI summary put it: “Private investments offer opportunities for diversification and potentially higher returns. However, they come with greater risks, higher fees, and less liquidity.”
Exactly. Greater risk, higher fees, and less liquidity.
3. Teeter-Totters Are Dangerous
When I was a kid, playgrounds had teeter-totters. They’ve mostly disappeared. Why? They’re dangerous. Children fall off, get pinched, and sometimes get clobbered when it slams down.
Teeter-totters—and leverage—work the same way: fun on the way up, painful on the way down.
I saw this first-hand during my short stint at Merrill Lynch from 1999 to 2001, where I had front-row seats to the tech bubble bust. I was at the Grand Junction, Colorado, office, far removed from most of the mania. But colleagues in Denver had clients who’d maxed-out margin accounts (a form of leverage where you borrow against your investments to buy more investments) and lost everything.
Thankfully, I had a mentor who drilled one phrase into me: If you’re going to err, err on the side of conservatism. That mindset kept my clients’ exposure reasonable. But watching others lose everything left a lasting impression.
My next leverage experience occurred coming out of the 2008/2009 crash. I decided to experiment with one of the new leveraged ETFs—an investment structure that lets you earn triple the daily market return! I figured the rebound was coming, so why not?
It scared the bejeezus out of me! The volatility made my stomach churn. Within a month, I was done. I sold it on an up day, barely ahead, and never touched one again.
Around the same time, I was watching leveraged real-estate investors lose properties left and right.
The leverage teeter-totter might be thrilling on the way up, but the down is devastating.
4. Paying Taxes Isn’t So Bad
After leverage came my next lesson—tax deals that promised magic.
When I moved to Arizona in 2001, I began partnering with CPA firms across the Phoenix valley. I arrived bright-eyed, convinced they’d want to do real financial planning. Instead, I found many focused on selling high-commission, tax-preferred products.
Every month brought a new “lunch and learn” pitching the latest tax strategy: life insurance plans, oil and gas partnerships, housing credits, equipment-leasing deals. Each promised big deductions—and paid big commissions.
Some firms were aggressively pushing these products. Luckily, the firms I was with were more cautious. We did place a few of these investments, and I’ve been able to see the results.
Even after factoring in the tax benefits, I’ve never seen one of the products outperform a simple equity index fund over the long run. Not once.
5. I Want to Believe in Unicorns
When I was little, I had unicorn posters on my wall and unicorn stickers on my notebooks. I can even draw a decent unicorn (I drew the sketch above). I love the idea of magic.
Naturally, I’m drawn to the idea of finding the next Apple stock or building the perfect portfolio. These are unicorns.
In my quest, one of the most interesting concepts I encountered was the “7Twelve Portfolio”, which is simply a diversified portfolio with a catchy name. The website says,
“Great salsa is all about diversification. Only by adding diverse ingredients together can we achieve the desired outcome. However, there are some ingredients in salsa that most of us would never want to eat individually, like hot peppers or Tabasco sauce. But, without the “hot” ingredients the salsa would be flat.”
I like salsa. Why not give it a try?
As I came across these ideas, I’d test countless portfolio combinations in Morningstar’s Advisor Workstation software, running simulations, tweaking allocations, and chasing optimal results.
Then, I came across Michael Edesess’ book, The Big Investment Lie (Amazon Affiliate link), which might as well have been titled “Unicorns Don’t Exist – But Advisors Keep Searching Anyway”.
Not long after, my portfolio philosophy settled into something saner: a rational, long-term approach aligned with each client’s timeline and goals.
Thank goodness I follow it with most of my own money, too.
Notice I said most, not all.
Apparently, I have a psychological need to keep searching for unicorns. So far, they remain elusive.
My curiosity (and quest for a magical Unicorn) has led me to try things with my own money I’d never recommend to clients.
I’ve lost money on penny stocks, microcap stocks, private deals, a fitness franchise, crypto experiments, and even one attempt at a product website (inspired after reading the book 4-Hour Work Week).
If I’d stuck with plain-vanilla index funds, I’d have hundreds of thousands more by now.
But then, I wouldn’t have the firsthand stories—or the conviction—I have today.
Curiosity could’ve killed this cat many times over, but training saved me. Throughout every experiment, the bulk of my money remained in a diversified portfolio, akin to a mild salsa recipe.
While my curiosity has led to wisdom and humility, my training has led to financial security. I have no doubt that had I not been lucky enough to land in this profession, I’d be broke and living with my parents at this stage.
After seeing, selling, and personally testing nearly everything under the financial sun, I’ve learned this:
The most magical portfolio is the most wonderfully boring one.
Beware of the latest “new” product out there, especially if it’s being hyped by someone motivated by the associated high commissions. I’ve chased Unicorns. I’ve invested. I’ve lost money.
I survived to write about it.
I want to believe in Unicorns.
But I’ve yet to find one.
Your Turn: Have you ever searched for unicorns? Share your best story, let’s have some fun and learn from each other at the same time…see you in comments.
