The field of behavioral finance has helped us to understand that we don’t always make rational investment decisions. We often make poor decisions because of our biases. And the designers of structured product are well aware of these “flaws” in investor behavior. So they structure products that exploit our flaws.
Few points to be taken in to account :-
- Never buy an investment product if there’s a commission attached to it.
- Only work with an adviser who offers a fiduciary standard of care.
- Only invest in a product if the seller can demonstrate that they also are investing in the same product.
- Never buy a complex product; if you can’t fully understand the nature of the risks and the costs, run as fast as you can because you can be 100 percent certain the complexity is designed to favor the issuer. In other words, you’ll be the patsy at the poker table who doesn’t know he’s the patsy.