A Ruse by Any Other Name...Still Stinks

These are the actual names of ten famous singers. How many of them can you identify? We’ll let you know the answers in a moment…

1) Stefani Joanne Germanotta
2) Shawn Carter
3) Harold Lloyd Jenkins
4) Marshall Mathers III
5) Faroukh Bulsara
6) William Michael Albert Broad
7) Robert Zimmerman
8) Reginald Kenneth Dwight
9) Steveland Morris
10) Anna Mae Bullock

It’s probably pretty obvious why some people in show business change their names. Nobody is going to get excited about a band with a lead singer named Faroukh Bulsara. But if his name is Freddie Mercury, well, that has a better ring to it.

Ok, so there’s your answer to #5.

But believe it or not, you’ll find things in the financial world that also change their names from time to time. And it’s usually for the same reasons that musicians change their names—because sometimes it just sounds better.

Here’s an example. Can I interest you in some junk bonds for your portfolio?

No, you’re not interested in buying some junk? Fair enough. Well, perhaps I could interest you in some of these high-yield bonds instead? They’re exactly what they sound like—they’re bonds that pay a higher yield than others.

Oh, you’d like some of those? Very well, here’s $125,000 worth of them.

But here’s the deal—junk bonds and high-yield bonds are the same thing. They’re no different than Reginald Kenneth Dwight and Elton John. (I promise we won’t give away all of the answers before you get to the end).

Here’s how junk bonds work. First, think about a lady with a 790 credit score and compare her to a guy with a 680 score. They could both apply for the same mortgage, and both might get approved. But the guy with the 680 is going to have a higher interest rate, because the lender perceives him to carry a much higher risk of not paying his bills.

Well, it’s no different with businesses. When you’re investing in corporate bonds, you’re lending money to a company. And if that company is relatively unstable and deemed to be a high credit risk, they have to pay a higher yield (interest rate) to get that loan.

They’re called “junk bonds” because you’re giving money to a crappy company that might not be able to pay you back. But they’re also called “high-yield bonds” because they pay out more than other bonds from companies that aren’t as crappy. So both names are accurate, but one sounds a lot more appealing.

Whether or not junk bonds are good or bad isn’t the point. The point is that if you don’t know much about them, your opinion is probably going to be pretty heavily influenced by how they get labeled.

And there are plenty of other examples.

Would you rather have whole life insurance or permanent life insurance?

Do you want municipal bonds or tax-free bonds?

Would you rather buy a mutual fund with a front-end load or one with a sales charge?

And you should see some of the names that investment companies will slap on certain product features to make them sound impressive, even though they’re nothing special at all. It would be like saying you prepared a dish of “oil-seared solanaceous crisps” when you made a plate of French fries.

Names aren’t all that important. What’s important is that you understand what you’re considering investing in, how it behaves, why it’s supposedly a good idea for you, and what the downsides might be.

Now for the pseudonym answer key. How many did you get?

Stefani Joanne Germanotta = Lady Gaga
Shawn Carter = Jay Z
Harold Lloyd Jenkins = Conway Twitty
Marshall Mathers III = Eminem
Faroukh Bulsara = Freddie Mercury
William Michael Albert Broad = Billy Idol
Robert Zimmerman = Bob Dylan
Reginald Kenneth Dwight = Elton John
Steveland Morris = Stevie Wonder
Anna Mae Bullock = Tina Turner