We live in an investment world full of choices. There are now thousands of ETFs, mutual funds and individual securities from which we can choose. To say nothing of all of the active managers out there who are trying to combine these components into winning portfolios. Net-net a this choice is a great thing for investors. For example we now have the ability to build super-low cost, globally diversified portfolios using only ETFs.
However with all these options comes the challenge of putting together portfolios. One reaction to all this choice is paralysis. This is one reason why so many investors can get stuck in cash for long periods of time. One way to deal with the plethora of choices is to simply cross certain investments off of your list. For example some investors now no longer pick individual stocks and rely on sector ETFs to gain certain exposures.
The folks at Morningstar recently asked their readers for investments that are on their “investment blacklist.” An explanation from their post:
Many investors have an investment blacklist–a type of investment they won’t touch for any number of reasons. Maybe they were burned in the past (such as those who have sworn off financial stocks in the wake of the financial crisis). Perhaps the industry is just too competitive or the financial statements too opaque. Even Warren Buffett once said he has three mailboxes in his office: “In,” “Out,” and “Too Hard.”
Reading through the answers is interesting. One distinction we should make is between investments that get on the list for personal reasons and others for more practical reasons. Personal reasons may simply be prior poor experiences with an investment that may simply be for bad timing or bad luck. More practical reasons may include avoiding any high fee financial products.
So, what is on your personal investment blacklist?
Update: One advantage of putting things on your investment blacklist is that it frees up some our attention for other things, investment-related or not. This point was driven home in a recent Rick Ferri post on the importance of reducing “investment noise.”