Let’s be honest, everyone wants to make as much money as possible with as little effort. That’s not always possible of course and, when it comes to financial planning, you need to be aware that all investments are definitely not created equal.
In fact, some can be quite dangerous, at least financially.
You need to always do as much research as possible to make sure that the investments you are considering making are the best possible. Also, with every investment you need to ask yourself simply this; is this calculated risk a good risk or a financially dangerous risk? With that in mind, we put together a list of investments that, in most cases, are financially dangerous and should be avoided.
- Investments that seem too good to be true, usually are. If you’ve been promised a constant and ridiculously large return or any type of business proposition that just doesn’t add up, you need to be extremely wary. In these cases using your common sense is your best defense and realize that the market fluctuates naturally over time. There’s no secret formula to maintain large returns on any sort of consistent basis. Also, when it comes to advice, even if a family member or trusted friend is giving it, never go on anyone’s advice alone but always perform your own due diligence, get references, research and get through documentation.
- Purchasing a new car, boat, motorcycle or RV. Practically everyone knows that once you drive your new car off of the dealer’s lot it’s going to lose quite a bit of its value instantly. Of course, depending on the type of car that you purchase and the amount of use you put into it, it will depreciate faster or slower than other makes and models. Interestingly, exotic color cars and luxury cars are known to actually depreciate faster than “regular” cars. Keep in mind that the cost to own a luxury or exotic car is also higher due to the cost of maintenance and premium gas. The same thing goes for boats, motorcycles and RVs and, in most cases, buying one that’s use but has been well maintained is a better idea.
- Buying or opening your own Restaurant. If you like to cook and you are a “people person”, owning a restaurant they seem like a really fun idea. In fact, it’s this preconceived notion about restaurants that actually dooms most of them to failure. Not only is the restaurant industry notoriously difficult but most people who open restaurants lack the experience and business background to actually run one well and instead believe that, just because cooking or entertaining is fun, owning a restaurant would be “great”. Just like any type of business it is vital that you have experience in the industry, have a well-designed business plan, avoid going into business with partners who have less experienced than you do and, as always, do your due diligence.
- Purchasing or ”flipping” Real Estate. In 2008 real estate investors across the United States were reminded that the real estate market can sometimes be incredibly volatile and that, in real estate as of life, there are no guarantees. Even if you’re just buying a house for yourself you not only need to be financially secure, have excellent credit and have enough money to put down a decent down payment, you need to also have an emergency fund to cover anything that might go wrong.
As far as “flipping” real estate is concerned, just because there’s a new genre of reality television shows that make it look easy doesn’t mean it actually is easy. If you’re considering purchasing real estate and then “flipping” it for a quick profit you’ll need to not only have a bit of luck but also be prepared for construction delays, the market taking another dive, your construction costs going over budget and many other factors that could turn your promising real estate adventure into a giant mess.
Hopefully we didn’t rain on your parade too much with this blog today but, in our opinion, it’s better to be forewarned about these types of risks then learn about them from hindsight after having lost your shirt.