I Want to Believe in Unicorns

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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?  😉

5 Lessons I’ve Learned Studying Unicorns

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.

Conclusion: Curiosity Didn’t Kill This Cat

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 the comments.

35 comments

  2. I like learning that my index funds, hands off approach has been the right one all along. Good analysis Dana.

  3. I miss the Retirement Manifesto blog. I can, and do, get all of these words on investment options through Kiplinger.

    1. No worries, Jeff. I’m still writing once a month (see my last post, Glory Days, published two weeks ago), and have another scheduled for two weeks from now.

      Personally, I love having Dana on the team. Her experience working with thousands of clients over the years gives her a valuable perspective that I can never have.

      Consider it a well diversified “portfolio!”

  5. A timely article as we are on the verge of the large investment firms lobbying hard to allow Private wealth investments into retirement accounts. The old saying “A fool and his money are soon parted”. Dip a toe in if can’t resist but don’t bet the farm.

    1. I find it terrifying that they are considering adding private investments to 401(k)s. I just can’t see how anything good is going to come of that. The idea is to give everyone that “potential” for higher returns. Ha.

      1. Agreed, 100%. In my cynical mind, the only reason there’s a push to get private investments available through 401K plans is that the private investment world has figured out there’s massive “gold in them thar hills” and they want to get their hands on a ton of it. And no better time than when there’s been a trend toward lower governmental oversight.

  6. Great article. There seems to be a little treasure hunter in all of us that needs to be reminded of these simple principles.

  7. Great article Dana! In my mid 30’s I purchased 200 shares of Dynagen, a company developing a smoking cessation product. In a short time the shares proceeded to go from $5 a share to $15 and the broker called and recommended that I sell all of the Dynagen and purchase stock from a company investing in storage shed properties. Storage sheds vs helping people to stop smoking! No way! I felt like the broker was trying to churn my account, however small. The company changed direction and their revenue dropped so much that they were removed from the Nasdaq. I received an attractive stock certificate with the total value of my investment nicely printed in the middle of the swirls and calligraphy at 25 cents! I turned $1,000 into a quarter and received the “diploma” for my “education”! No unicorn! I’m retired now going on 5 years and in my mid-60’s with investments in mutual funds and ETFs across indexes for large and small cap growth and value. They have grown quite well over the decades and I have never forgotten my search for a “unicorn”! I’ve enjoyed watching several of your YouTube shows and you have been a great addition to The Retirement Manifesto. Nice drawing!

    Write On!
    Scott

  8. Thanks for a good article. In my area, structured notes are the new hot investment. One more to avoid.

    2. For some real excitement, buy a young, barely trained horse! Those out-of-control runaways will really get the adrenaline pumping.

  10. Very well written article Dana but the problem is you’re preaching to the choir. Many of these products are pitched to the uninformed. Some of my less “educated” friends are the ones buying these products because of a dinner seminar or stuff that they’ve seen online. I try to gently suggest that they seek alternate points of view but often they don’t. Ultimately, it’s not my money so I keep my mouth shut but do you have a good way to approach these people?

    1. The challenge is we often only hear things when we are ready. I’ve been guilty of that myself – insistent a path would work when well-informed individuals told me it wouldn’t. We can nudge. We can share. Maybe share the article without preaching. “I thought you might find this useful as you embark on your investment journey.” Or buy them a copy of your favorite investment book. My go-to book was always Bill Bernstein’s Four Pillars of Investing. And anything by Carl Richards or Morgan Housel.

  11. So well written, and probably more meaningful to us who have also chased unicorns and lost money in the process. I sometimes think that I’ve made every mistake you can make but yet at 65 I still have a pretty good nest egg, and a ton of stories of what not to do.

    So at 65 I have fired my last financial advisor and will finally put what I have in a very simple portfolio of plain vanilla ETFs. I hope to enjoy the ride home.

  12. My learning venture into unicorns came very early in my career and (fortunately), it was before I had any real money to invest so my exposure, and loss, in a penny stock was only 3 digits. It came at a time when the public interwebs were still in their infancy and I came across an article about how this particular penny stock was poised to hit it rich. It was years after the loss that I realized that this was one of the early Pump-n-Dump schemes. The benefit of this early lesson has been years of boring and very profitable growth in the basics. This tremendous growth now affords me the luxury of “play money” to speculate on things like crypto ETFs and fledgling Rare Earth Mineral mining companies. But I’ll never forget that early lesson and so these speculative investments will always be a tiny fraction of my portfolio with the remainder in boring old index ETFs with double digit growth and bottom of the barrel fees.

  13. I am subject to hunting for Unicorns as well, but now most things have a history that can be researched to validate it’s potential. I have been an active investor, but just as the history shows, passive ETFS have outperformed. I enjoy the challenge of trying but have learned to do it with only a small percentage of my assets.

  14. Awesome article and very validating for my boring approach. I was married for a bunch of years to someone who frequently sought unicorns. Luckily, I had a different approach but benefitted from seeing “what if” through his experiences. We lost some money, chasing those rainbows, but it was mostly outside our retirement accounts and limited by my paranoia about our shared finances. We both did what we liked in our own 401K’s, where I was quite boringly invested primarily in indexed funds. I’m grateful for that experience and the gentle lessons that came with it, as I am for your good advice and engaging writing styles, Dana and Fritz – Thanks team!
    P.S.: That is a terrific unicorn drawing, Dana! 🙂

  15. Dana,
    What a terrific post! I admire your honest and vulnerable approach. You included equal parts, storytelling, humility, and hard-earned wisdom. What a fun and down-to-earth way to briefly describe your career journey and all the lessons learned along the way and how you use those lessons to help guide others in their financial journey.
    Following Fritz Gilberts posts over the years, I’ve somehow managed to keep my overall retirement plan boring and it is working out well!!! (Thank you, Fritz, if you are reading these comments!)
    Dana, Thank you again for this post. It makes me feel good about the choices I’ve made. Please keep them coming!
    Oh, and your Unicorn sketch, well it’s pretty darn good!
    Francis

    2. You’re welcome. 😉

      (And, I’ll always read the comments. Its one of my favorite parts of blogging! Thanks for being a long-time reader.)

  16. Great article and so true. Many years ago, my wife and I bought a Variable Annuity Life Insurance product similar to what you described. I should have known it was a loser when we asked a bunch of detailed questions and the sales rep brought in her boss to answer our questions. Yeah, that’s a red flag. Ignoring the red flag, we each bought a small policy, but after 3 years of lackluster performance (in the mid-late 90’s mind you), we terminated it. Lost a little in surrender fees, but it was a great lesson. We’ll never buy an annuity, or any “loss coverage” product. As you note, no product can promise everything. You have to give up something and usually it’s your hard-earned cash. Thanks again for the great article.

  17. Dana,
    Thank you for this article. It made me think back to all of the “too good to be true” moments in my life, and the stories I have heard from friends and family. Unfortunately, when people become comfortable in their investing/financial lives, they become vulnerable to these Unicorn moments. People need to stay vigilant, especially as the methods of influencing investors changes – Private funds in 401k accounts, Medicare Part C commercials rampant on TV, deceptive emails and text messages, can’t lose pitches from family – it goes on and on.

    Talk to a professional, get a plan, and stick to that plan.
    Steve

  18. Dana, great reminder. I have friends who are looking for that crypto unicorn. It can be tempting, but I will just keep on keeping on!! Thanks for sharing your personal stories. It really helps!!!

  19. Very timely article. So many recent financial articles are pushing many of these same products with the marketing pitch of diversification and higher returns. It’s an important reminder that many of these concepts don’t work for a large portion of the investors.

  21. Good article and even though it may be preaching to the choir, I find that even those that are well-informed can always do with a refresher course. There is no such thing as higher return and lower risk – at least with the investment options I have. One thing though on the Privacy is Overrated part: Private REITs are a long way away from private real estate investment. Yes both are illiquid but REITs most often offer a high level of diversification. Real estate, for the most part, is a great place to put your money.

  22. Lovely to learn from your experience of 30 years ! And delighted to get one more validation for Index funds 🙂

    Since you asked for stories, I recently documented my own experience & story over approx. 20 years of investing here on LinkedIn: https://www.linkedin.com/pulse/lessons-learnt-from-180-sub-optimal-mutual-fund-choices-mezjan-dallas-nddoc/?trackingId=BDseKil7TuavQ%2FGyEX%2BSSw%3D%3D

    and on my website here: https://investmentcoach.co.in/lessons-i-learnt-from-180-sub-optimal-mutual-fund-choices/

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