worst investments
Updated January 26, 2021

The 9 WORST Investments You Can Make


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The 9 WORST Investments You Can Make

A bad investment is worse than a toothache. OK, I just made that up, but bad investments are pretty bad, and when you make a bad investment, just like a toothache, it can really make your life miserable. Just like I want you to brush and floss at least twice a day so your life isn’t miserable from a toothache, I also want you to think before you invest, learn from my mistakes, and invest smart.

So in this article, I want to talk about a few types of assets that I see a lot of people investing in without necessarily doing enough research to fully understand what they’re getting into.  Obviously that doesn’t mean you’ll always lose money if you make these investments, but I would still recommend being extremely cautious if you’re thinking about investing in any of them. Remember, if you put your money in the stock market and let it ride for the next twenty or thirty years, you can probably expect a ~7% return year over year, and that’s kind of the benchmark against which I evaluate investments.  So without further ado, here are nine of the worst investments you can make.

1. Collectibles

The first bad investment I want to bring up is the whole field of collectibles. That’s a broad category, but a collectible could be anything you’re buying for some kind of collector’s value. Art is maybe the most obvious example, maybe that’s not something you think of as a collectible, but still when you buy art as an investment you’re hoping that a collector will eventually buy it from you for more than you paid. But it doesn’t necessarily have to be art, you could also invest in other collector’s’ items like baseball cards, rare stamps and comic books, really anything that collectors are interested in.

Now the problem with collectibles is that it’s incredibly difficult to predict what future collectors are going to value. For example, the first edition of the Amazing Spider-Man comic book from 1963 could be worth tens or even hundreds of thousands of dollars today. So if you were around in 1963 and you knew this in advance, you could have bought a bunch of copies, kept them in really secure storage for most of your life, and then come away with millions of dollars. Sounds simple, right?

Unfortunately, for every new comic book series that becomes a collector’s item, there are going to be hundreds of series that never get more valuable than their original sale price.  If you’ve seen any of my investing videos then you know hard it is to time the market, and that’s especially true for collectibles since their value is mostly tied to popularity and nostalgia. Now that isn’t anything against collectibles, if you like Spider-Man and you have the money to buy Spider-Man collector’s items then you should get whatever comic books you want, but I would treat that as entertainment rather than an investment for future value.

2. Penny stocks

Another really common investment I see people make is in penny stocks. If you aren’t familiar with penny stocks, that term basically refers to any stock that trades for a very low price. The Securities and Exchange Commission defines a penny stock as any stock trading at less than $5 per share, but that’s not really a hard and fast rule, some people might think of penny stocks as less than $1 or something like that.

Now the appeal of penny stocks is obvious—you can buy a large number of shares for a relatively low price. So if you invest a few hundred dollars in a penny stock and it suddenly breaks through, then you could be looking at a much higher return than you would be getting from a big company like Apple or Google or Tesla.

The downside of that strategy is that it’s really hard to verify that a particular penny stock has the potential to blow up like that, or even maintain its current value. There are actually a few really common penny stock scams that you could easily fall into, but even if you don’t get scammed penny stocks are still a lot less reliable than shares in larger companies.

Of course, that doesn’t mean there’s no risk involved in investing in Apple, but I think you can at least trust them to have competent management and a decent market share for the foreseeable future. On the other hand, if you invest in a penny stock, you don’t really even have a guarantee that the company will still exist this time next year. So ultimately I would give you the same advice I gave for collectibles, if you want to buy penny stocks as a gamble then that’s fine, obviously there’s a chance it will work out, but in my opinion there’s just too much risk here, and I wouldn’t put any significant amount of money into something so volatile.

3. Little-known Cryptocurrencies

Cryptocurrencies, especially ones that are new and unknown, are another asset that can be really similar to penny stocks. And again, they’re very tempting because we’ve all heard stories about people who invested in Bitcoin before it really started to grow, right.

So depending on how early you invested, you could have purchased Bitcoins for as little as a few cents each, but even if you were a little later, say in 2013, you still could have found them for less than $150.

Bitcoin value peaked near the end of 2017 at just under $20,000, and you don’t have to be an accountant to know that $20,000 is more than 100 times bigger than $150.

So in just four years you could have grown your investment by over 100 times, that means turning $1,000 into over $100,000


$10,000 to over $1,000,000, which is almost unheard of in investing.

And Bitcoin as of the time I’m recording this it’s above $13,000.  So I’m not bashing Bitcoin here, and full disclosure, I do own some Bitcoin and Ethereum, but these are a very small portion of my overall portfolio. I had a foundational portfolio of stocks and real estate first before I even thought about buying cryptocurrency.

But what I really want to talk about are these cryptocurrencies that you probably haven’t heard of. These tend to be manipulated through pump and dump schemes, which you should definitely be aware of before you get into cryptocurrencies. First, somebody who has a lot of money will purchase a lot of coins from a little-known cryptocurrency. And then somehow they’ll convince others that this cryptocurrency is the next big thing, so other people buy in, and that drives up the price.  And then after the price has been driven up, the person who bought a ton of coins cheap sells his or her coins, which causes the price to plummet, and you’ve been left holding the bag.

So you might think you’ll have better luck investing in a new and unknown cryptocurrency, but then you’re back in the same situation we saw with penny stocks where most of these currencies are never going to develop any real value at all.  I would prefer that you invest in index funds, rental properties, solid investments like that, and if you are interested in cryptocurrency, don’t buy coins that could be easily manipulated. Of course Bitcoin is still risky, but there’s so much in circulation that it’s very unlikely that any individual investor would have much control over its value.

4. Real estate syndications

If you follow my channel, then you probably know that I talk a lot about real estate, and in general real estate can be an extremely lucrative field. On the other hand, there are also some pretty questionable investment opportunities, and to me that list starts with real estate syndications.

Maybe you haven’t heard of real estate syndications, but they essentially involve a group of investors teaming together to invest in a particular property or set of properties.  So on a basic level, that could be you and a few friends, pretty casual, maybe you split a property four ways and then you each get 25 percent of the returns.

But when you talk about real estate syndications, the contributions are usually divided between the investors, who provide the funding, and the syndicator who looks at properties and tries to get investors interested in the project. This will depend on the specific syndication you’re looking at, but usually that syndicator is just going to take a small percentage of the sale price.

Now splitting the cost and the returns isn’t necessarily a bad strategy on its own, and it can work out in some cases, but I’ve seen a lot of real estate syndications fall through for many different reasons. And one of the most common factors there is that the sponsor isn’t necessarily as knowledgeable as they should be or as they claim to be.

If you invest in a real estate syndication, you’re putting a lot of trust in that syndicator to find a good property, to manage it well, and to exit properly. Again, that’s not to say that it will never turn out well, but if you do invest in a syndication, you want to be in a situation where you’re really confident in what they’re doing. Unlike, say, investing in stocks, your money isn’t liquid in a real estate syndication. It’s typically locked up for a few years, so unless the syndicator you’re investing with has a solid, independently-verifiable track record, I would recommend staying far, far away.

5. Forex and binary options

Another kind of investment I’ve heard a lot about recently is forex trading, and binary options are another opportunity that’s almost more like a gamble than an investment.

Forex, or foreign currency exchange trading, is when you buy and sell different currencies in order to come out ahead. So if you buy 80 pounds with 100 dollars, then let’s say the exchange rate changes and now every pound is worth two dollars, that means your 80 pounds are now worth 160 dollars when you go to sell them. And forex traders are trying to win those kinds of bets by buying currencies at lower values and then selling them when they gain value relative to other currencies.

Binary options are a little different from forex trading, yes you could buy a binary option on foreign currencies, but you could also buy it for another asset like gold or the S&P 500. And what the word “binary” means there is that you’ll either get some cash back or nothing at all, there are only two possibilities, so it’s a binary option.

So maybe you think the S&P 500 is going to go up at a certain date, you can buy a binary option on that.  And if you put, say, $100 on that binary option, then you could get something like $200 if you end up being correct. Of course it might be a little more or less, that’s going to depend on how likely people think the different outcomes are, but the point is you’re going to have the opportunity to get a pretty significant return.

On the other hand, if you’re wrong, you don’t just lose whatever the S&P 500 lost, you actually lose everything you put into it.  So that’s why I said that binary options are more like gambling than traditional investing, and personally I think both binary options and forex trading are just too risky for the average investor. And even if you’re right sometimes, it’s going to be tough to be consistently correct about those outcomes. And you’ll lose everything you invested every time you’re wrong.

In the same way, currency exchange ratios are really hard to predict.  Obviously there are people who have done this successfully, I’m not saying it isn’t possible, but for everyone who wins a binary option there’s probably someone else who loses.

There are also a lot of people saying they can help you make money with forex, binary options, cryptocurrencies, or some other get rich quick scheme. I actually get a lot of activity on my videos from spammers and fraudsters, these are just a few of the comments I’ve received recently.

So if you see these kinds of comments on my video or others’ videos, just ignore or even better report as spam, it definitely makes a difference and it might help someone avoid falling into something like that. It’s pretty obvious, right, and sometimes there are these manufactured comment exchanges between multiple YouTube commenters who are probably the same person, for example here we have an “interaction” between “Anthony Grayson” and “Isabella Williams,” and this is clearly staged.

And in general, this sounds obvious when I put it in writing, but when an investment opportunity sounds too good to be true then it probably is. So ultimately I would rather put my money in the S&P 500 itself and go for those long-term gains rather than betting on whether it’s going to go up or down at a particular time.

6. Annuities

I’m not sure I would technically call annuities an investment, but this is another really popular option. In fact, total annuity sales in the United States were estimated to be over $200 billion in 2018.

Some of you may not be familiar with annuities, and basically how they work is that you’ll give the annuity company either a lump sum or some kind of regular payment, and they’ll pay you the money back over time.  So let’s say you pay into an annuity plan until you retire, then you’ll start receiving regular payments when you’re no longer working and you need to supplement Social Security and whatever other sources of income you’re relying on during retirement.

A lot of the specifics are going to depend on your plan. For example, some annuities offer a fixed interest rate, others are going to let you invest in mutual funds, which means your returns are going to depend on market conditions.

Now there’s an obvious appeal to annuities, especially if you have some extra cash now and you’re concerned about retirement, then it’s logical that you would want to pay into an annuity while you’re working and get those benefits when you stop getting income from work. Unfortunately, annuities also come with a few problems, and I think it makes a lot more sense for most people to invest their own money rather than paying into an annuity.

The first drawback to an annuity is that most of them charge a lot of fees, and those are going to make a pretty big dent in the value of your investment. Another issue is that you’ll only have access to the money on their schedule, so if something comes up and the regular annuity payment isn’t enough, then you’re going to have to pay substantial penalties in order to access the rest of your money.

And I think it’s important to recognize that annuities are an insurance product rather than an investment, so the company who’s giving you the annuity is going to win more often than they lose.  On the other hand, one of the advertised benefits of annuities is that they’ll cover you in case you outlive your retirement savings, but you’re actually more likely to outlive your retirement savings if you invest in an annuity, particularly if it has a fixed interest rate and you miss out on the gains you could have earned if you had invested in stocks.

7. Whole life insurance

One question I hear a lot is whether life insurance is a good investment, and the answer is that it’s complicated.

There are basically two kinds of life insurance. On the one hand you have term life insurance, and on the other you have whole life insurance. And basically the difference is that term life insurance only covers you for the length of the term you agree on when you get the coverage.

If you want life insurance for a period of 20 years, the insurance company will look at your profile, your risk factors, etc. and tell you how much it will cost to get a certain amount of coverage. From there, your beneficiaries will get the payout if you happen to die during that term, but if you die any time after the term ends, even if it’s just the day after your insurance expires, then they’re going to be out of luck even though you put all that money into the coverage.

So term life insurance is essentially a bet against your own life, and a lot of times it’s a good investment for young people. If you’re young and healthy then you can usually get more favorable rates, and you also might not have enough of a net worth yet where you could provide for your loved ones if you pass away. And by the time the term expires, say 20 years later, hopefully you’ve had a chance to put more money away and you don’t necessarily need to rely on a life insurance payout.

That’s term life insurance, but whole life insurance is basically an entirely different type of investment, and personally I think for most people it’s not a great investment. The difference between term and whole life insurance policies is that with whole life insurance, you’ll always receive a payout when you die, there’s no expiration date on those benefits, unlike term where you aren’t insured after the end of the… term.

Of course, the specific terms are going to vary from policy to policy, but in general with whole life insurance you’re going to be making payments like you would with term life insurance. And over time, those payments are going to increase the cash value of your whole life insurance plan. So it’s different from term life insurance and other types of insurance where you pay a premium in exchange for coverage, instead you’re putting your own money away for the future like you would with a retirement account or something like that.

Now again every policy works differently, but the main reason I recommend against whole life insurance is that it just isn’t an efficient use of your money.

One of the advertised benefits of whole life insurance is that you can borrow against the cash value of your plan later on, so if you lose your income at 50 or something like that then you’ll be able to pull some cash from your life insurance plan. But the cash in your life insurance plan is actually your own money that you already contributed, so you would have even more convenient access to it if you had just invested that money.

On top of that, whole life insurance premiums are typically far more expensive than term life insurance premiums, and for all the benefits that are often talked up with whole life insurance, the sky-high premiums typically kill any attractiveness it may have had for the average person.

So if you’re considering whole life insurance, in most cases I think it makes a lot more sense to pay less money for term life insurance and then put the difference into a retirement account or even a regular brokerage account. That way you’ll be covered by your term life insurance policy if something happens and you die in the next 10 or 20 years, but you’ll also be putting money away for the long term, and it won’t be locked away in a whole life insurance plan where you’re going to be losing a lot of value.

Personally, I think a lot of people who invest in whole life insurance don’t really understand the other ways they could save for the future, and in general it’s just more cost-effective to invest that money yourself and get term life insurance if you’re really concerned about being able to provide for your family after an untimely death.

8. Bonds

The next assets I want to cover are bonds, now I explained why I personally don’t invest in bonds in a video on my channel, so you should check that out if you want to know more specifically about bonds. So I don’t want to spend too much time on them here,  but the main reason I avoid bonds is that they tend to gain value pretty slowly especially compared to other asset classes like stocks and real estate.

Yes, that growth in bonds is relatively consistent, and you’re less likely to lose a lot of money quickly during a crash or something like that. But at the same time, you’re not going to get the same returns in the long run that you could get with stocks or real estate, for example.

So in a sense bonds are safe, and I don’t think there’s anything wrong with putting a small percentage of your portfolio in bonds, especially as you get closer to retirement. But in general I would only do that if I think I might need to withdraw within the next, say, five years. And the longer you’re planning to hold your assets, the more I would lean toward putting money in stocks rather than bonds so that you can maximize your gains over the entire length of that investment.

9. Cash

OK I’ve already covered eight of my least favorite investments, but the last one I want to talk about is cash. Now you’re probably thinking “OK, but cash isn’t really an investment,” and that’s exactly my point. Every investment has its own pros and cons, but keeping your money in cash completely prevents you from generating any returns.

So I just talked about how bonds aren’t likely to gain value very quickly, and that’s true, but even a mediocre year for your bond fund is still usually going to have at least some growth.  On top of that, it’s not just that cash doesn’t gain value, it’s also that cash tends to lose some value every year, just look at the price of things from twenty, thirty, fifty years ago in dollars compared to today.

Inflation has fluctuated between around zero and three percent over the past ten years, so it’s not like you’re going to lose a lot of money overnight, but even just a couple percentage points will add up to large-scale losses over months and years of inflation if you just keep your money in cash, and that’s why you need to invest, folks.  I do believe in emergency funds, but beyond that, and after you’ve knocked out your high-interest debt, I want you investing, investing, investing, so click this link for my video on investing for beginners.

All right everyone that’s all I have for you today, obviously there are a lot more than nine bad investments out there, but these are a few of the most common ones that I’ve personally seen people invest in.

Again, I want to emphasize that none of these are always bad ideas. For example, if you follow cryptocurrencies really closely, you might be able to make more informed investing decisions than I can, or you might be really confident in a real estate syndication where you trust the syndicator and you have good reasons to believe that they can get you the returns you’re looking for.

So the point of this isn’t to say that these are always going to end badly, it’s just that you should be really careful to understand the pros and cons of each investment. I’m sure I missed some other risky investments, some of you have probably seen people lose money on other opportunities, so make sure to leave your thoughts in the comments for everyone else who’s reading. As always thanks so much for reading, I really appreciate it, and I’ll see you next time.

Logan Allec, CPA

Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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