The Worst Investments You Can Make

Xin Lu — Thu, 01 Sep 2011 10:24:11 +0000

Generally, people love to talk about the best investments they have ever made, but we rarely hear about others talk about the worst investments they made. Good investments are those that maintain your principal and give you a positive return with time. The worst investments are those that burn through your principal and then continually pull money out of you without giving any return. The following are some of what I consider to be the worst investments. (See also: 7 Common Investing Mistakes)

Timeshares

Timeshares are set up by developers and hotel conglomerates to sell shared interest in their properties. They usually give great presentations where you can get a free stay at the property, and then they will try to sell you the right to use the property for a portion of the year. There is nothing wrong with this business model, but those who buy a timeshare directly from a developer should know that it is a terrible investment. First of all, the resale value of a timeshare is almost always lower than its original price. It's possible to find secondhand timeshares for 50% of the developer's price or even less on the resale market. Next, timeshares have maintenance fees that could be thousands of dollars every year. So if your intention for buying a timeshare is vacationing, it might be cheaper to just pay for the vacation yourself. If you don't use your timeshare for vacationing every year, then the money will be wasted. It is possible to rent out your deeded timeshares, but usually it is difficult to find a renter just for your time slot, and it's tough to recover all the fees you have to pay.

Penny Stocks

Penny stocks are stocks that are priced under $1 per share. They are usually at that price for a reason. The prices of these stocks are generally easier to manipulate because trade volumes are low. This is why there are many sites and marketers that promote penny stocks. If they get enough of a following, they can change the price of a stock on the open market and make it seem like it is easy money. The truth is that the promoters of the penny stock websites and mailing lists are the ones making the real money. There are legitimate penny stocks out there that appreciate suddenly, but to actually find them consistently can be difficult.

Badly Chosen Higher "Education"

It is often said that higher education is an investment in your future. However, there are many institutions of "education" out there that are nothing more than degree mills. Many of these schools accept nearly everyone who applies and leave the students with a pile of debt and low chances of employment in this competitive world. Recently there were several cases of students suing their alma maters after they graduated and were unable to find employment. I think more people should treat higher education as a financial decision and calculate the potential return before financing it with a huge student loan. It is fairly easy to look up the reputation of a school and the expected pay for your intended profession. If you do not choose carefully, then education funded by student loans might be the worst investment you could make, because student loans are not dischargeable.

Investments You Don't Understand

Many investments can be the worst investment you ever make if you don't do your research. For example, some investment products have fees and surrender charges that you need to clarify before you buy in. There are also investments such as rental properties or a small businesses that require you to put work into them to keep their existing yields. The bottom line is that you should get as much information as possible before putting any money down.

What are the worst investments you have ever made? Have you put money into any of the above and regretted it?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

bad financial products

The Worst Investments You Can Make

Timeshares

Penny Stocks

Badly Chosen Higher "Education"

Investments You Don't Understand