There are various ways to invest your money and improve your financial situation. While some of these investment options can help you generate money, there are also several investments that are risky and will cost you. Here are seven investment options that you should stay clear of.
1. Failure to Diversify
The stock market changes at a moment’s notice, making it crucial that your portfolio is diverse. When you diversify your portfolio, you invest in various stocks and sectors. Properly diversifying your portfolio minimizes your risk and increases the chance of a return, even when the market takes a turn for the worse. To properly diversify your portfolio, invest within and among various asset classes such as stocks, bonds and other short-term investments.
2. Too Large of a House
When applying for a home loan, you may qualify for a loan that is much more than you can afford. If you agree to the loan, the payments can put a strain on your budget and entire financial situation. Financial experts recommend paying no more than 28% of your monthly paycheck to your mortgage. Additionally, avoid agreeing to 30-year loan terms. They can cost you thousands of dollars in interest and keep you buried in debt much longer than is needed.
3. Poor Education Choices
Higher education is a terrific investment, but it can also leave you buried in debt. For college to be a worthwhile investment, you must make the right educational choices. For example, avoid unaccredited colleges or schools with poor reputations. These schools accept almost all applicants, but often employers will not acknowledge degrees from these schools, leaving you without employment.
Additionally, several schools may offer degrees in a very short period of time but for thousands of dollars. Taking out loans to pay for this type of education comes with high interest rates, and you may be making payments for several years. Finally, you must repay student loans, even if your education doesn’t pay off in the end due to poor education choices.
If you love to travel, a timeshare may be on your list of investments. However, it isn’t a wise choice. A timeshare can cost you a significant amount of money each year, even if you don’t use it. You will also have yearly maintenance and housekeeping fees to worry about. If you choose to sell, the resale value is typically lower than the original cost. If you sell your timeshare at a loss, you cannot claim capital loss on your taxes.
5. Hedge Funds
A hedge fund is when a group of investors pool their money together to gain capital. This investment is expensive and illiquid, meaning you can’t touch the money and withdraw for a certain period of time – typically one year. Additionally, when you invest in a hedge fund, there are numerous fees to be aware of, including performance and management fees.
A collectible is an item that is rare, in demand and of value. Collectibles include toys, art, coins, comic books, stamps, antiques and baseball cards. Unfortunately, many of these items may never appreciate or may not appreciate in the time frame you expect. To make any money investing in collectible items, you must have extensive knowledge of the item to know what will drive an individual to purchase the item at a high price. Furthermore, the item must be in high demand. If you choose to invest in collectibles, consider the item’s rarity, authenticity, age and condition to receive the highest return.
7. Business Partnerships
A close friend or family member may have a great idea and ask you to invest. While the idea may sound good and the promise of return even better, be cautious. Look at business plans, ask questions, gather extensive research and bring in professionals before you invest in something that’s confusing or risky. One “good” idea could cost you a significant amount of money.
The key is to be smart with your money. While there are many investment options, making the wrong choice will have unpleasant results.