Many people get confused when it comes to investing. That is because most of them do not know where and what to invest their money in.
Here are the 5 things you should never consider as investments. Ever. Unless you know for certain what is it that you are doing.
1. Jewellery and gems
All that glitters may not be gold
Unless you are an expert in the field of gems and jewels, stay away from this. They are usually keepsakes and ornaments. The value they possess almost always diminishes the moment you make the purchase; despite what your family and friends may tell you about how “gold will never lose its value.”
I know some people buy physical gold bars as an investment. While this may come in handy in a post-apocalyptic earth scenario, there just has to be easier ways to invest your money. Not to mention, you have to worry about storing the physical gold after you bought it.
2. Art and Collectibles
Again, stay away from anything you do not completely understand. You’re much better off having your money in the bank than in some art dealer’s pockets.
Sure I know Monets and Van Goghs are highly prized and have been sold for crazy money. But I doubt a novice will be able to differentiate a potentially valuable piece from garbage. I know I wouldn’t be able to.
This Barnett Newman painting was auctioned off at US$44 million. If you don’t understand why, you shouldn’t invest in art.
Another thing to consider is that most of the artists whose works are selling for tens and hundred of millions today, died as paupers in their time. Even if you have wisely selected the right piece of art to invest in, what makes you think that potentially valuable piece you have picked out will pay off in your lifetime?
3. Mutual Funds a.k.a Unit Trusts
Unit Trusts. U need trust. Get it?
I may get some stick for this. But I hate buying into mutual funds for two reasons.
a. Most fund managers, even the good ones, cannot beat the market over the long term. It’s statistically improbably, if not impossible. This is called the random walk theory.
b. You are going to be paying a lot of fees and charges to buy into a portfolio that will most likely not be able to beat the market over the long term. This is called the let’s-not-feed-the-already-grossly-rich-financial-guys theory. And if they can’t beat the performance of the martket and you are paying them management fee, that means you are underperforming the market.
4. Investment-linked insurance policies
For those who do not know, an investment-linked policy is basically a policy where the premiums you pay is used to pay for insurance charges and to buy into unit trusts.
Why should you not buy investment-linked policies? The first reason is that you should always separate your insurance and investment decisions. The fact that insurance companies want to lump it together signals red flags to me.
Secondly, you really will not understand what is going on with your policy unless you’re somewhat familiar with investing. And if you are somewhat familiar with investing, you should know enough about it to preserve and grow your wealth. You should also know enough to understand why just buying a term policy is sufficient for insurance protection.
The truth is that most investment-linked policies have quite a few variables that may result in returns being much lower than expected. But most sales representative will not take the time to explain everything to you, since it is far too extensive and you probably will not really understand it anyway even if they do explain.
Hence they simplify a sophisticated investment platform into one that everyone can understand, including the elderly, by omitting certain information.
Trust us, if you are able to understand an investment-linked policy over just a cup of coffee, you are better off not getting it because there are likely to be quite a lot of things which you are missing out on.
5. Investing in a CD
No, not those shiny metallic discs that glimmer blue and green which you don’t use anymore.
A CD is a “Certificate of Deposit”, or more commonly known as leaving your money in the bank. So it may seem strange that I’ve been warning you off certain investments and still think putting your money in the bank is a silly investment.
Truth is, there is nothing more dangerous for your retirement than leaving your money in the bank. It’s true – the interest you earn on your money in the bank is a laughable 0.05%. So if you left $100,000 in your account, you’d be earning a cool $50 after a year, and losing out to inflation at almost sixty times the rate of your gains every year. Mind-boggling.
This article was written for and first appeared on Mothership.sg.
Royalty-free photo from Getty Images. Used with appreciation.
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