This post is part of a series where personal finance expert Dan Solin looks at money secrets that help the rich stay rich. See them all.The headline needs a caveat: some rich people did invest in complex instruments they didn't understand.
They are no longer rich.
Hedge funds are a perfect example.
Few people really understand them. They are not regulated. It is difficult to figure out what they are investing in. It is even more difficult to determine if they have deviated from their original investment strategy.
They promise big returns without additional risk.
Many investors and even pension funds fell for the pitch.
Few took the time to look at the data.
One study of 1,917 funds found that only 17.7% beat their benchmark.
Hedge funds are imploding at an alarming rate. One site that tracks hedge fund failures reports that, since mid-2007, 95 funds managed by 58 firms have blown up.
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