If you’re looking to improve your financial situation, there are tons of different ways you can invest your money and generate income. However, there are also various investments that are risky and can cost you big bucks if you aren’t wise. Below are seven of the worst investments choices that you can make.
1. Not Diversifying Your Portfolio
Because the stock market can change at a moment’s notice (if that), it is crucial for your portfolio to diversify. One of the worst investments decisions you can make is not diversifying. Diversification, in an investment sense, means investing in various sectors and stocks. This minimizes your risk of loss and boosts your chances of a return, even if the market takes a turn into the negative. In order to diversify your portfolio property, invest among and within various asset classes like bonds, stocks, and more short-term investments.
2. A Loan You Cannot Afford
When you apply for a home loan, there is a chance that you’ll qualify for a loan that exceeds what you can afford. If you agree to the loan, your payments will strain your budgetary and financial situation. Expert financial advisors suggest that you shell out no more than 28% of your monthly paycheck in order to pay off your mortgage. Do not agree to thirty-year loan terms, as those will run you up thousands of interest dollars and bury you in debt for a very long time.
3. Poor Choices for Higher Education (College)
There’s no doubt that higher education is a great investment. But, we also all know that you can be buried in debt because of it. So, in order for college to be a smart choice, you have to choose wisely. Avoid unaccredited colleges, as well as schools that have bad reputations. Though these schools accept pretty much anyone, employers will not prize degrees from these schools highly, leading to a not-so-optimal job situation.
Beware of schools that offer degrees in a short time period. They will probably cost you thousands of dollars. Loans to finance this form of education generally have extremely high interest rates, which means you’ll be paying them off for years. Note that even if your education doesn’t pay off, you’ll still have to pay off student loans. It’s best to take out loans and make smart educational choices to make these loans pay off.
A timeshare may seem like a good investment to you if you love to travel. But, love of travel aside, a timeshare is one of the worst investments you can make. It costs you a lot of money each year, regardless of whether or not you use it. Maintenance and housekeeping fees come yearly, and they can cost a lot as well. Resale value, should you decide to sell, is usually lower than what you paid for it. If you sell the timeshare at a lost, you will be unable to claim capital loss on your tax forms.
5. Hedge Funds
When a group of investors pools money in order to gain capital, that is called a hedge fund. It is illiquid, meaning you cannot withdraw for a period of usually a year, and expensive. Also, a hedge fund is one of the worst investments choices you can make because of the fees. Performance and management fees are just some of what you’ll have to pay.
Rare items that are valuable and in-demand are known as “collectables,” and they can include art, toys, comic books, coins, antiques, baseball cards, stamps, and more. Sadly, many of these treasured items don’t appreciate at all, or, if they do, they don’t appreciate within your expected time frame. To profit from collectables, you would need to have an immense amount of knowledge of the market, as well as a sense for what would make someone buy the item for a high price. The item also must be in-demand. Investing in collectables requires consideration of an item’s rarity, age, authenticity, and condition, and, even then, the chances of a high return are slim to none.
7. Business Partnerships
A family member or close friend might come up with a great idea and share it with you in the hopes that you’ll invest. Be cautious of this, even if the idea sounds enticing. Check the business plans, ask tons of questions, accumulate extensive research, and get professional feedback before you invest in a risky or confusing venture. A buddy’s “good idea” can lead to a significant loss of capital.
Though there are many investment options, you have to make sure that you’re not choosing wrongly, as that will have an unpleasant result. The key is to be cautious and get second, third, and fourth opinions, if not more. Avoid these worst investments at all costs, too.
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