[{"@context":"http:\/\/schema.org","@type":"Article","description":"This article covers the worst investments you can make.","video":"https:\/\/www.youtube.com\/watch?v=w1jd2JJkZ1I","headline":"The 9 WORST Investments You Can Make","name":"Worst Investments Article","image":"https:\/\/moneydoneright.com\/wp-content\/uploads\/worst-investments.jpg","articleBody":"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\u2019t 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\u2019re getting into.  Obviously that doesn\u2019t mean you\u2019ll always lose money if you make these investments, but I would still recommend being extremely cautious if you\u2019re 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\u2019s 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\u2019s a broad category, but a collectible could be anything you\u2019re buying for some kind of collector\u2019s value. Art is maybe the most obvious example, maybe that\u2019s not something you think of as a collectible, but still when you buy art as an investment you\u2019re hoping that a collector will eventually buy it from you for more than you paid. But it doesn\u2019t necessarily have to be art, you could also invest in other collector\u2019s\u2019 items like baseball cards, rare stamps and comic books, really anything that collectors are interested in.  Now the problem with collectibles is that it\u2019s 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\u2019s item, there are going to be hundreds of series that never get more valuable than their original sale price.  If you\u2019ve seen any of my investing videos then you know hard it is to time the market, and that\u2019s especially true for collectibles since their value is mostly tied to popularity and nostalgia. Now that isn\u2019t anything against collectibles, if you like Spider-Man and you have the money to buy Spider-Man collector\u2019s 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\u2019t 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\u2019s 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\u2014you 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\u2019s 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\u2019t get scammed penny stocks are still a lot less reliable than shares in larger companies.  Of course, that doesn\u2019t mean there\u2019s 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\u2019t 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\u2019s fine, obviously there\u2019s a chance it will work out, but in my opinion there\u2019s just too much risk here, and I wouldn\u2019t 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\u2019re very tempting because we\u2019ve 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\u2019t 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  or  $10,000 to over $1,000,000, which is almost unheard of in investing.  And Bitcoin as of the time I\u2019m recording this it\u2019s above $13,000.  So I\u2019m 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\u2019t 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\u2019ll 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\u2019ve been left holding the bag.  So you might think you\u2019ll have better luck investing in a new and unknown cryptocurrency, but then you\u2019re 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\u2019t buy coins that could be easily manipulated. Of course Bitcoin is still risky, but there\u2019s so much in circulation that it\u2019s 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\u2019t 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\u2019re 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\u2019t necessarily a bad strategy on its own, and it can work out in some cases, but I\u2019ve 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\u2019t necessarily as knowledgeable as they should be or as they claim to be.  If you invest in a real estate syndication, you\u2019re putting a lot of trust in that syndicator to find a good property, to manage it well, and to exit properly. Again, that\u2019s 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\u2019re really confident in what they\u2019re doing. Unlike, say, investing in stocks, your money isn\u2019t liquid in a real estate syndication. It\u2019s typically locked up for a few years, so unless the syndicator you\u2019re 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\u2019ve heard a lot about recently is forex trading, and binary options are another opportunity that\u2019s 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\u2019s 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 \u201cbinary\u201d means there is that you\u2019ll either get some cash back or nothing at all, there are only two possibilities, so it\u2019s 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\u2019s going to depend on how likely people think the different outcomes are, but the point is you\u2019re going to have the opportunity to get a pretty significant return.  On the other hand, if you\u2019re wrong, you don\u2019t just lose whatever the S&P 500 lost, you actually lose everything you put into it.  So that\u2019s 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\u2019re right sometimes, it\u2019s going to be tough to be consistently correct about those outcomes. And you\u2019ll lose everything you invested every time you\u2019re wrong.  In the same way, currency exchange ratios are really hard to predict.  Obviously there are people who have done this successfully, I\u2019m not saying it isn\u2019t possible, but for everyone who wins a binary option there\u2019s 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\u2019ve received recently.  So if you see these kinds of comments on my video or others\u2019 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\u2019s 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 \u201cinteraction\u201d between \u201cAnthony Grayson\u201d and \u201cIsabella Williams,\u201d 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\u2019s going to go up or down at a particular time.  6. Annuities I\u2019m 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\u2019ll give the annuity company either a lump sum or some kind of regular payment, and they\u2019ll pay you the money back over time.  So let\u2019s say you pay into an annuity plan until you retire, then you\u2019ll start receiving regular payments when you\u2019re no longer working and you need to supplement Social Security and whatever other sources of income you\u2019re 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\u2019s an obvious appeal to annuities, especially if you have some extra cash now and you\u2019re concerned about retirement, then it\u2019s logical that you would want to pay into an annuity while you\u2019re 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\u2019ll only have access to the money on their schedule, so if something comes up and the regular annuity payment isn\u2019t enough, then you\u2019re going to have to pay substantial penalties in order to access the rest of your money.  And I think it\u2019s important to recognize that annuities are an insurance product rather than an investment, so the company who\u2019s 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\u2019ll cover you in case you outlive your retirement savings, but you\u2019re 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\u2019s 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\u2019s just the day after your insurance expires, then they\u2019re 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\u2019s a good investment for young people. If you\u2019re 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\u2019ve had a chance to put more money away and you don\u2019t necessarily need to rely on a life insurance payout.  That\u2019s term life insurance, but whole life insurance is basically an entirely different type of investment, and personally I think for most people it\u2019s not a great investment. The difference between term and whole life insurance policies is that with whole life insurance, you\u2019ll always receive a payout when you die, there\u2019s no expiration date on those benefits, unlike term where you aren\u2019t insured after the end of the\u2026 term.  Of course, the specific terms are going to vary from policy to policy, but in general with whole life insurance you\u2019re 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\u2019s different from term life insurance and other types of insurance where you pay a premium in exchange for coverage, instead you\u2019re 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\u2019t 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\u2019ll 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\u2019re 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\u2019ll be covered by your term life insurance policy if something happens and you die in the next 10 or 20 years, but you\u2019ll also be putting money away for the long term, and it won\u2019t be locked away in a whole life insurance plan where you\u2019re going to be losing a lot of value.  Personally, I think a lot of people who invest in whole life insurance don\u2019t really understand the other ways they could save for the future, and in general it\u2019s just more cost-effective to invest that money yourself and get term life insurance if you\u2019re 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\u2019t 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\u2019t 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\u2019re less likely to lose a lot of money quickly during a crash or something like that. But at the same time, you\u2019re 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\u2019t think there\u2019s 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\u2019re 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\u2019ve already covered eight of my least favorite investments, but the last one I want to talk about is cash. Now you\u2019re probably thinking \u201cOK, but cash isn\u2019t really an investment,\u201d and that\u2019s 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\u2019t likely to gain value very quickly, and that\u2019s 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\u2019s not just that cash doesn\u2019t gain value, it\u2019s 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\u2019s not like you\u2019re 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\u2019s why you need to invest, folks.  I do believe in emergency funds, but beyond that, and after you\u2019ve 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\u2019s 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\u2019ve 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\u2019re looking for.  So the point of this isn\u2019t to say that these are always going to end badly, it\u2019s just that you should be really careful to understand the pros and cons of each investment. I\u2019m 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\u2019s reading. As always thanks so much for reading, I really appreciate it, and I\u2019ll see you next time.","datePublished":"2020-11-10","dateModified":"2022-07-25","publisher":{"@type":"Organization","logo":{"@type":"ImageObject","url":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Money-Done-Right-Personal-Finance-and-Investing-Blog.png","name":"Money Done Right Logo","height":"488","width":"60","@id":"https:\/\/moneydoneright.com\/#ImageObject"},"address":{"@type":"PostalAddress","name":"Money Done Right Address","addressCountry":"United States","addressLocality":"Valencia","addressRegion":"California","postalCode":"91354","streetAddress":"23890 Copper Hill Dr Ste 139","@id":"https:\/\/moneydoneright.com\/#PostalAddress"},"url":"https:\/\/moneydoneright.com\/","publishingPrinciples":"https:\/\/moneydoneright.com\/methodology\/","additionalType":"Blog","name":"Money Done Right","email":"support@moneydoneright.com","sameAs":["https:\/\/twitter.com\/moneydoneright","https:\/\/www.facebook.com\/moneydoneright\/","https:\/\/www.instagram.com\/moneydoneright\/","https:\/\/www.linkedin.com\/company\/money-done-right\/","https:\/\/www.pinterest.com\/moneydoneright\/","https:\/\/www.youtube.com\/c\/MoneyDoneRight"],"foundingLocation":"https:\/\/en.wikipedia.org\/wiki\/Santa_Clarita,_California","legalName":"Allec Media LLC","naics":"519130","parentOrganization":"https:\/\/moneydoneright.com\/#ParentOrganization","founder":{"@type":"Person","hasCredential":["https:\/\/cslainstitute.org\/","https:\/\/en.wikipedia.org\/wiki\/Certified_Public_Accountant"],"url":"https:\/\/moneydoneright.com\/author\/logan-allec\/","spouse":"https:\/\/moneydoneright.com\/author\/caroline-allec\/","image":"https:\/\/moneydoneright.com\/wp-content\/uploads\/2020\/01\/Logan-Allec-Money-Done-Right.jpg","name":"Logan Allec","description":"Logan Allec is a practicing Certified Public Accountant, Certified Student Loan Professional, and the founder of personal finance blog Money Done Right.  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He also educates thousands of people every week on The Money Done Right Show.","email":"logan.allec@moneydoneright.com","sameAs":["https:\/\/loganallec.com\/","https:\/\/twitter.com\/loganallec","https:\/\/www.benzinga.com\/author\/logan-allec","https:\/\/www.facebook.com\/logan.allec","https:\/\/www.fareverse.com\/writer\/logan-allec-cpa-freelance-writer\/","https:\/\/www.instagram.com\/loganallec\/","https:\/\/www.legalzoom.com\/author\/logan-allec","https:\/\/www.rent.com\/blog\/author\/logan-allec\/","https:\/\/www.thebalance.com\/logan-allec-5192331","https:\/\/www.youtube.com\/channel\/UC3Jg7eUCBPsjX13X7kTW1hQ"],"familyName":"Allec","givenName":"Logan","birthDate":"1988-08-04","birthPlace":"https:\/\/en.wikipedia.org\/wiki\/Anaheim,_California","alumniOf":["http:\/\/www.ucla.edu\/","https:\/\/en.wikipedia.org\/wiki\/Ernst_%26_Young","https:\/\/www.usc.edu\/"],"gender":"Male","jobTitle":"Founder","nationality":"https:\/\/en.wikipedia.org\/wiki\/Americans","worksFor":{"@id":"https:\/\/moneydoneright.com\/#Organization"},"@id":"https:\/\/moneydoneright.com\/author\/logan-allec\/"},"@id":"https:\/\/moneydoneright.com\/#Organization"},"mainEntityOfPage":"https:\/\/moneydoneright.com\/worst-investments\/","author":{"@id":"https:\/\/moneydoneright.com\/author\/logan-allec\/"},"@id":"https:\/\/moneydoneright.com\/passive-income\/stock-investing\/worst-investments\/#Article"},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Passive Income","item":"https:\/\/moneydoneright.com\/passive-income\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"Stock Investing","item":"https:\/\/moneydoneright.com\/passive-income\/\/stock-investing\/#breadcrumbitem"},{"@type":"ListItem","position":3,"name":"The 9 WORST Investments You Can Make","item":"https:\/\/moneydoneright.com\/passive-income\/stock-investing\/worst-investments\/#breadcrumbitem"}]}]