Why 'exclusive' investments are usually just expensive
Be skeptical of the alternative investment sales pitch
Ever been pitched an investment that felt exclusive?
Like you were getting access to something the average investor couldn’t touch?
That feeling of being on the inside of something special?
I know that feeling well.
In Your Money Personality, I admitted that I have to watch myself when something new and interesting catches my eye.
It’s part of who I am.
My curious brain loves the feeling of discovery.
That same instinct—the one that makes many of us want to try a new gadget or restaurant—is what drives the popularity of alternative investments.
They’re marketed as something different, something smarter, something that the “average investor” can’t access.
It sounds exciting.
But that excitement can be costly.
A quick story
A woman I met a few years ago came to me for a second opinion.
She had about $500,000 tied up in a private energy fund her previous advisor had recommended.
It was pitched as a “private diversified income fund with limited downside.”
The reality?
The fund charged more than 3% per year in fees—that’s $15,000 a year just to own it—on top of whatever her advisor was charging her.
And get this: investors were only allowed to sell up to 20% once per year, and the performance didn’t even keep up with a basic total-market index fund.
It took five years to fully unwind her position—five years of fees, frustration, and limited access to her own money.
She thought she was buying something exclusive.
In the end, she owned something expensive, illiquid, and complex.
Here’s the idea
Alternative investments—often called “alts”—are designed to appeal to emotion, not reason.
They’re designed to make you feel smart—and your advisor look indispensable.
They play on the feeling that you’re getting in on something special.
They’re marketed as ‘exclusive’ because exclusivity sells.
But in most cases, you’re not buying better returns.
You’re buying complexity, high fees, and the illusion of sophistication.
When people say “alternative investments,” they’re usually talking about things like private real estate funds, hedge funds, private equity or debt, structured notes, non-traded REITs, or even niche lending programs.
The pitch often sounds like this:
“This fund isn’t correlated to the stock market.”
“It’s only available to qualified investors.”
“It’s a way to add stability when markets are volatile.”
It all sounds comforting.
But peel back the layers, and you’ll often find complexity without value.
Why this matters
The real risk here isn’t market volatility.
It’s locking up your money in something you can’t easily exit, might not fully understand, and that quietly eats away at your wealth through fees and complexity.
When you’re in your 60s and want simplicity and access, that’s the opposite of what you need.
But it’s easy to fall for the story.
We all want to believe there’s a smarter, safer path—something not everyone knows about yet.
But investing success rarely comes from being first or different.
It comes from being diversified and patient while keeping your costs low and not making your money or your life any more complex than it needs to be.
And then there are the tax headaches
Many alternative investments issue K-1 forms, which can delay your tax filing and complicate your returns.
Some may generate income that’s taxed in unexpected ways.
If you’re trying to simplify your financial life in retirement, this is the last thing you need.
The simple truth
If you have a solid financial plan and a diversified portfolio of low-cost ETFs, you already own exposure to thousands of companies around the world.
Mix in some high-quality bonds and there’s no need for alternative investments.
That’s real diversification—transparent, liquid, and inexpensive.
You don’t need complexity to get results.
Yes, Yale’s endowment owns alternative investments.
But Yale also has a team of PhDs, decades to wait, and no need to tap the money for monthly expenses.
You’re not Yale.
And the person pitching you these investments isn’t Yale, either.
And if you ask me, Yale doesn’t need these alternative investments either!
What to do next
If someone tries to sell you an alternative investment, first pause.
Then ask a few simple questions:
How are you compensated? If the answer feels fuzzy, trust your gut.
Do you own it yourself? If not, why not?
What happens if I say no? What risk am I really avoiding?
Why the rush? If you hear words like “exclusive” or “act now,” that’s a red flag and you should
walkrun away.Is this helping or complicating my plan? When in doubt, simpler is better.
You don’t need to invest in something that requires a legal pad or PowerPoint presentation to explain.
Bottom line
When it comes to investing, boring is beautiful.
Alternative investments are often the shiny objects of the investing world: they grab your attention, but rarely deliver what you hope for.
You deserve a plan that feels calm and clear, not one that depends on opaque products or complex promises.
A calm, transparent plan you understand will always beat an exciting one you don’t.
If you’re ever pitched one of these investments—or if something sounds too good to be true—be extra skeptical.
And feel welcome to send me an email if you want me to look at something with you.
You’ve worked hard for this money.
You don’t need to complicate it to prove you’re being smart.
Simple, transparent, and calm—that’s what works.
And that’s what you deserve.
I appreciate your continued readership.
Please let me know if you have any feedback or suggestions for future essays.
Until next Wednesday,
Russ