Past a certain level of wealth, curiosity about what you can now invest in opens the door to more complicated options. At that point, stock and bond ETFs can start to feel too retail. A reinsurance sleeve or an exchange fund carries a status signal that an index fund doesn't. Complexity then starts to feel like a proxy for alpha.
Private credit, structured notes, exchange funds, insurance-linked products, and leveraged direct indexing can take material amounts of time and focus to understand, and this can lead to effort justification. That is when the more time you put into learning about something, the harder it is to walk away from it. Sunk cost fallacy works alongside it, applied to money already spent. Both push the same direction: complicated products are easier to say yes to (especially when you're paying someone to advise you).
A first sanity check: what problem does the product or strategy solve that a simpler alternative doesn't? Private credit has a public credit comparison; leveraged direct indexing has a plain direct-indexing comparison. When the added complexity clearly solves something the simpler version can't, net of fees and lockups, it earns its place in the portfolio.
A second check: how did the strategy perform the last time its thesis was tested? Tail-risk products in 2020 and reinsurance during the 2017 hurricane season are two clear examples. Seeing how a specific strategy held up in those periods gives you a real basis for sizing the position.
A third check: how does this flow through the tax return? Some complicated products generate ordinary income instead of long-term capital gains; others come with K-1s and filings in multiple states. Looking at the after-tax number rather than the gross return often changes the comparison to the simpler alternative.
Complexity shouldn't disqualify an investment from earning a seat at the table. If a product or strategy adds value, it belongs in the broader portfolio conversation. The key is applying a consistent framework: define its functional role, determine an appropriate size, and model how it performs when the market turns volatile.
For educational purposes only. Not tax, legal, or investment advice.