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There are some really bad investments lurking out there, and it can be easy to fall into them. Try to avoid investments you don’t understand, and be careful of anything that offers a so-called guarantee that isn’t backed. Be aware of liquidity problems, upkeep and fees. Here are five examples of bad investments.
These are stocks selling for less than $1 per share. They have a strong allure, because your broker will tell you about some .75 cent shares that rocketed to $40 in a few years. These incidents are rare. Almost all penny stocks will become worthless over time. Very few start-up companies actually get their shares above $3, and most actually fade into oblivion. Even if the company hangs on, their shares will likely linger around the penny mark. Avoid the temptation to gamble on any of these penny stock companies. They are long shots, and only 1 in 1000 will become the next big deal.
Boats and Cars
Many people who come into money like the idea of buying a boat or yacht for the summers, and the salesman will tell you it’s a good investment. It is not. It’s harder to sell a boat than to sell hot dogs at a vegetarian meeting. If you buy a boat for $40,000 on Monday, you couldn’t sell it for $20,000 on Tuesday. It is a money pit if you keep it long term. The marina fees and maintenance will cost more than you could imagine. If you really enjoy boating every weekend, then go for it. But as an investment, it’s one of the worst. Cars are equally bad, even classics.
This one will raise some eyebrows. Some people still haven’t learned, even after the financial crisis of 2008/2009, that real estate is a bad investment. A few savvy people will make some good money in it, but the rest of us won’t. Investment properties are expensive to maintain and consume a lot of time. Taxes and maintenance are not cheap. Real Estate is not liquid. Just ask anyone who’s spent years trying to sell a house, then accepted 10% lower than the market value. There are better ways to spend your investment money.
Insurance is a good way to protect your family during your peak earning years, and while your children still live at home. However, don’t mix insurance with investments. It is not a good investment; you’ll pay more into it than you get out of it. You’ll also continue to pay into the premiums long after you still need it. Insurance is for protection, not for investing. Don’t ever replace your savings account with insurance instruments, and don’t be swayed by the tax advantages. It’s not worth it.
While loose diamonds and gems are a good investment, jewelry is not. The jewelers will tell you to go ahead and spend a fortune on your fiancee’s ring – it’s an investment! Ah, but a bad investment. You will never get back the value put into it. You will only get back the value of the stones themselves. You generally pay 50% more for workmanship on the ring itself. This never comes back to you. Buy jewelry if you like it, but not as an investment.
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