Knowing how to invest your hard-earned money comes with its fair share of challenges. Whether you're an avid investor or someone who's looking to get into the market, it's critical to educate yourself on what is and what is not a sound financial strategy.
Making poor financial decisions can have negative consequences. Researching and learning more about common investment scams can save you time and money in the long run.
Surprisingly, younger people are putting their money to good use by investing in the stock market. Still, women tend to be more conservative with their investments. There are various reasons why this may be the case, but they can greatly benefit from making the right financial investments if they know what to avoid.
Here are six investments you should consider avoiding if you're looking for a way to earn more. Avoiding these can save you time, money and energy in the future.
1. Timeshares
While timeshares seem like an attractive investment opportunity, it can be extremely risky to purchase one. There are downsides to investing in timeshares — it's rare to find a potential buyer in the after-market. There are many scams out there, and you could face foreclosure if you default on your payments.
It's vital to consider the pros and cons of owning a timeshare before investing in one. They often become an expensive investment, and many people are stuck with payments they may not be able to afford. It can also be very difficult to exit a timeshare, as it can be quite an exhausting process.
One of the goals of investing in something is to ensure it will increase in value over time. Timeshares do just the opposite, so be sure to consider that before investing in one.
2. Multilevel Marketing Schemes (MLMs)
Multilevel marketing schemes, also known as network marketing, direct sales, party plan companies or pyramid schemes, are traps to avoid. Some common MLM schemes include Avon, Amway, Arbonne and Herbalife.
In November 2018, over 18 million Americans were involved in MLMs, and 99% of them lost money. Investing in these types of schemes will typically require you to recruit 10 or more people who will also sell a given product.
As more people begin selling, the scheme's creators earn the most money, while those below them earn the least. It can leave you struggling.
3. Investments From Dating Apps
With the rise of dating apps in recent years, it's no wonder criminals turn to these channels to reach vulnerable individuals trying to seek connections.
One internet dating scam cost a young professional $100,000. After meeting someone on the app, scammers will establish open lines of communication and foster a friendship or relationship with their victim. They will gradually introduce investment opportunities and convince them to download a fraudulent investing app.
As victims see their trades perform well, they invest more money. Everything seems legitimate at first, but the scammer will end up taking all their funds from the app and are never heard from again.
It's important to know the warning signs of schemes such as this one, as it's never a good idea to invest in something you've heard about from a stranger.
4. Homes
While conventional wisdom says a home is a wise property investment, it may not be depending on your financial situation. Owning a house takes a lot of money out of your pocket, with all the maintenance, utility bills and insurance costs.
It's commonly known that owning a home means you can sell later. Maybe you have considered adding smart home technology to make your house more appealing to future buyers. Still, the value won't appreciate enough to offset the costs mentioned above. Say you earn an inheritance where you're financially stable enough to purchase a home. It could help you build equity, but on the other hand, it could drain your accounts.
You have to be extremely careful when considering buying a home — it may seem like a good idea at first, but investing in other avenues may pay off more in the long term. If you're disciplined with your finances and believe a home would be helpful for your investment portfolio, it may be worth considering.
5. Penny Stocks
Penny stocks can be the perfect opportunity for scammers to take advantage of you. One type of scam involves someone driving up the price of a stock and then selling it after the price is significantly raised.
People with limited knowledge of the stock market should not invest in penny stocks. While they can help diversify someone's portfolio, they can also be highly volatile.
Investing in penny stocks can be challenging, especially if you don't clearly understand the financial health of a small company offering those shares. Before investing, it's critical to have basic knowledge of the stock market and how to invest in penny stocks so you don't end up losing money.
6. Cars
One of the significant reasons cars are not worth investing in is that they immediately begin to depreciate as soon as it's driven off the lot. It's also critical to consider the expenses associated with owning a vehicle, such as maintenance, fuel costs, insurance payments, financing or leasing options, and general upkeep.
If you do find yourself in a situation where you need to purchase a car, there are some things you can do to ensure you're not throwing money out the window.
Make Intelligent Investing Decisions
Understanding why these examples may not be good investments is important as you become financially secure. Consider putting your money into mutual funds or a retirement plan to secure a healthy future for you or your family.
It's best to consult a financial adviser if you're interested in growing your funds. They can advise you on what's best for your unique situation and guide you through which types of investments are suitable based on your savings and annual income. Making educated investment decisions will leave you better off than impulsive investments based on trends.
