Debt Free

Some investments are just plain bad. It’s been said a fool and his money are soon parted. Leaving apart for a minute the question about the likelihood of a fool and his money getting together in the first place, never is that more true than with some of the so-called investments to follow. Keep in mind, an investment is supposed to increase in value, or provide cash flow. In this way you can actually have more money in the future than you’re sitting on now. Sadly, some investments don’t really work that way. Here are a few.

If you see these, keep in mind that, as an investment vehicle, they rate only slightly better than a boat. They’re just a hole in the water into which you pour your money. Many bad investments have the potential for huge returns, that's how they suck so many people in. You chances of success, however, amy be dismal. Some can deliver great returns if you perform the proper due diligence. One of the keys to successful investing is 'Be Informed'. You can't take this advice too far. The more you know, the fewer surprises you'll encounter. Unfortunately, in the investment world, surprises turn out to be bad more than good.
 

1-     Any penny stock tip that comes over your fax machine. You probably get 10 of these a week. Yes, you could get lucky and make a killing on one of them, but you may as well help out your state’s education fund by playing the lottery. You’ll probably have a better chance of striking it rich.  These are usually just a part of some pump n’ dump scheme, designed to stimulate interest and sales, and raise the stock price a bit so the guy that sent you the fax can make his 150% profit. By investing in one of these, you’ll be violating one of the keys to investment success; be informed.

 

2-   Real Estate – I can hear you all grumbling now. I’m not talking about any real estate, but the potential to lose copious amounts of money by not doing your due diligence in a real estate transaction. Usually real estate is a very good investment; however the potential is there for you to get stung in a big way. Especially if you are a novice investor, you need to watch out for such potential problems in real estate investing as;

A-    Coming legislation renders your property essentially worthless. This can happen if you’re not careful, especially with the drive in certain areas of the country to limit building due to environmental or growth concerns.

B-    Not being able to secure financing for your intended project. If there are problems or issues with the property such as no utilities, or a sewage holding tank, you may have to correct these before a lender will agree to provide financing for your development project. If these considerations were reflected in the price, fine, if not, look out.

C-    Building code issues could cost substantial money to mitigate. If there’s a building on the property, it may be just fine; on the surface. The problem arises when you go to get it remodeled. In many jurisdictions, you’ll have building code issues that must be addressed. If you don’t touch the building, you may be okay, if you begin to remodel or add on to it, you may have to bring the entire structure and site up to compliance with existing building codes. Needless to say, this can cause you to fork out substantial amounts of money, so do your due diligence!

 

3-      Multi-Level Marketing – Okay, it’s possible to make a fortune in MLM, but just not very likely. I mean extremely unlikely. You’ll hear statistics such as “MLM is a $10 billion business.” While true, it’s only a very tiny fraction of the around $2-1/2 TRILLON retail sales channel. Sadly, most people who enter into a MLM program are throwing their money away. According to some estimates, only about 1/2% of Amway distributors make over $40 a month. That doesn’t work out to very much per meeting, does it? I’ve personally seen extremely organized and personable people bring hundreds of people in their down lines in MLM organizations and make virtually nothing for it. In addition, be very wary of those companies that offer you the ability to receive stock in lieu of monetary compensation. In most cases, it’ll end up with about the same value as Great Northern Paper stock has today, $00000.

 

According to the Federal Trade Commission, 70% of a company’s goods and/or services must be purchased by non-distributors, or the company is considered a pyramid scheme . Most MLMs average 10 – 20%, draw your own conclusions. You can enter into a MLM business, but be careful, chances are you’ll invest considerable time and resources, yet never end up raking in the MLM dough like your uncle Harold.
 

There are countless other historically bad investments, such as timeshares and classic cars. The key is that some of these should not be viewed as investment vehicles at all. They’re hobbies and pleasurable diversions. If they happen to unexpectedly turn a profit, so much the better. Have a great Thanksgiving. If you live outside the US, have a great day at work while we take in some American football, pumpkin pie, and roast turkey.