We work very hard for our money. We know that over time our money actually loses value against inflation, growth and everything else. Making wise investments is the only way to really keep your head above water and making poor investments can set you back literally for years. Today I am going to cover some of the worst investments so that you can avoid any temptation to choose them.
Number one, and this is one we've all faced at some point or another is debt. Debt works against your money, whether it's credit card debt, student loan debt, or otherwise. If you don't pay off your debt before you invest, you are likely still losing money. Of course you can try to jump between interest rate offers and play that game, but at the end of the day, if you're putting money into investments before you take care of debt, then you are missing the easiest opportunity to get ahead.
The second worst investment is putting your money in savings accounts. Your average savings account at your bank down the street is literally paying you pennies a year. At the end of a year with $1000, you might make $5 or something like that. And that might actually be high….I haven't looked at the rates and long time. They're not even worth looking at because it's pennies on the dollar. So savings is a terrible investment for the long term. Now, savings accounts for emergency funds or short term obligations makes sense in order to keep that money off to the side. However, it is not an investment. Your money does not grow there.
Number three, and this is another popular one, penny stocks. Penny stocks get a lot of attention, particularly on the internet, by people looking at penny stock courses, day trading, etc. Penny stocks are volatile….that's the bottom line. If you can't spend 24 hours a day, seven days a week monitoring and learning about your penny stocks, you're not going to win at this game. An entire gain can be wiped out in a matter of hours. Almost every penny stock is a distressed company or a company that is barely hanging onto their public shareholdings. Any gains you make trading them can get wiped out in a matter of minutes the very next day. That is simply too risky of an investment.
Fourth on my list of worst investments are collectibles. This includes things like baseball cards, stamps, even purses. I know some ladies like to collect purses, antiques, things of that nature. There is nothing wrong with collecting as a hobby, but generally speaking, collectibles do not make good investments. Some collectibles can be a good storage of wealth if you want to all of your money in the stock market or retirement accounts. If you have a collectible that's valuable and you anticipate that it will continue to be valuable, treat it as a storage of wealth, much like gold or silver.
Ultimately, collectibles do not have a finite value. They are worth what people will pay for them. Let's say you have a Joe Montana football that you bought for $1000 with the hope that 20 years from now it will be worth $10,000. Joe Montana is signing footballs every day across the United States for every card show and banquet that he goes to. Your football is only worth what people will pay for it. And if Joe Montana goes on an autograph spree or the market is dumping their collectibles at the same time as you, then you can expect to have a very poor return from whatever you paid for that. So collectibles, in most cases, are one of the worst investments you can make.
Number five on the list of bad investments are timeshares. If you have a family like I do, then you've likely been pitched a timeshare via mail, email, or telemarketing. Timeshares are awful. Luckily, they have received a lot of negative publicity lately, so most people know that a timeshare is not an appreciating asset. If anything it's just a debt instrument since you have to pay every year regardless of whether you use them or not. I've never really understood the value of booking a vacation months or years in advance. Committing to a hotel brand or specific location far in advance seems unnecessary. Life changes fast and the travel industry has become so efficient in the age of ecommerce. Why you would commit to a vacation three to five years in advance?
And for the same reason as collectibles, timeshares are only worth what the market will pay. If you think about Airbnb and the competitive nature of the hotel market, selling your timeshare means going up against some stiff competition. You will be lucky to get a fraction of what you paid. If I can call up Marriott and sign up for the same thing you have, but they'll probably throw in more things at the same price, why would I buy it from you for that price? If I'm going to buy it from you, I'm going to buy it for 50% less, 40% less or more. And that of course means you've lost money on your “investment.”
The last of the worst investments I want to cover today are new cars. Now I like cars so I don't want to be hypocrite here. I don't drive a 1998 station wagon with 600,000 miles on it. I like to have a newer car but I will tell you that every time I purchase a car it's at least two years old. I'm sure you've heard that when you drive a new car off the lot you're losing 5% of the value just by driving it away. And cars don't go up in value, they go down in value.
I do believe that cars are necessary for most folks since there is an inherent cost of transportation, but never buy a new car and think that you're investing for your future. In reality, you're actually just paying for transportation on an asset that almost certainly will decline in value.
Even vintage cars are debatable investments. Those would fall in the collectibles department. So if you have an old Jaguar or BMW, or even if you had like a Ferrari or Lamborghini, those are collectible. But once again, you're at the mercy of what people will pay and it's very unlikely that you're going to make a lot more money than once you paid for it. The exception would be if you had an old car, a classic car that you restored in your garage as a pastime, you might make some money off of that depending on how you budgeted the restoration in terms of cost. Typically, the only person making money off of a car or car purchase is a mechanic or a dealership.
These are my top six worst investments that you can make. Always remember that your money is racing against inflation every day. Choosing solid investments is the only way to come out ahead with the cash you have on the sidelines. Hopefully this list will help you avoid losing money to a depreciating asset. You simply cannot afford to incur multiple losses in your quest to grow wealth.