CDOs, or collateralized debt obligations, have been one of those innovative financial instruments that Wall Street is famous for, producing yet another way to offer sub-prime debt with high interest to the retail public. In this particular incarnation, sub-prime debt is combined with higher quality debt instruments and the whole package is then priced and sold as a single tradable entity. Investors looking for above average returns have been attracted to this financial instrument, with hedge funds leading the way in investing in these higher-risk/reward packages. Does this however belong in your portfolio? Is this a bona-fide wealth building tool?

Recent moves by the credit rating agencies such as S&P and Moody's not withstanding (which chose to indirectly bring down the overall ratings of CDOs), CDOs are in general, in our view, a fancy way to make a bad story look good. You can, if you wish, invest directly in junk bonds or in top-quality AAA rated securities. A suitable mix can be created in your own portfolio without going the route of CDOs. Thus CDOs do not create access to here-to-fore unreachable investment opportunities.

There are some extreme situations which CDOs may provide access to - but those are best left to professionals - such as hedge funds - to invest in. You, as an individual investor and wealth builder, are unlikely to have the time and energy to track those situations closely enough to avoid the many minefields inherent in those special situations.

The desire for a higher return for the income portion of your portfolio is always great - but far too many people have lost their shirt in search for that extra percentage in returns. Turning your focus away from CDOs and instead concentrating on the many quality funds available that use specialized tactics such as special debt strategies, trading in pure mortgage-backed securities, investing in debt instruments across the world (whose currencies are showing great strength) and so forth are far more reliable methods to gain that extra point in your returns.

The best method for a serious wealth-builder to build wealth is to seek out opportunities that fundamentally create value and invest in them - and CDOs are not one of those opportunities.