Our investments are our life lessons. They teach us to be patient when the markets are slow, to not panic when they tumble, and to not be too greedy when they are at an all-time high.
The problem with investors is that at times, they get too carried away with market sentiments and do not realize where to stop.
Every market analyst or expert will advise you about what to do and where to invest. But hardly does anyone tell you which investment to avoid. Here are the four types of investments that an investor should avoid at any cost.
Complicated investment
It is always better for you to stay away from investments that you do not understand. if you think about it, it does make sense. Why would you invest in companies that are beyond your understanding? Strictly avoid a stock if you have doubts about the company, its business, source of cash flow, whether the company has a pension fund, outstanding dilution, any outstanding debts and liabilities, debt-equity ratio, and past performance in term of returns and dividends. If the company cannot convince you to invest, do not consider that investment.
High-cost investment
High-cost investments can hamper your returns, and they do not guarantee high yields. Most mutual funds charge anywhere between 0.1% to 1% of your investment as fees, thus making a dent in your returns or yields. This is called expense ratio. Investments with a high expense ratio are not worth your money if they cannot guarantee good returns over a long period of time. Instead of investing in high-cost investments, consider investing in low-cost index funds.
Metals
The only advantage an investor gets by investing in precious metals is cover against rising inflation. Though metals appeal to some investors, they carry risks that should be avoided. The problem with investing in precious metals is the considerable uncertainty associated with the investment. In the event of economic uncertainty, there are many fluctuations in metal prices. Experts believe that when you invest in precious metals, you invest in things. Metals by nature are very volatile and do not give significant returns.
Foreign bonds
Many consider foreign bonds as an investment option. Though foreign bonds look attractive, they constitute a very risky proposition. Investing in foreign bonds is dependent on the currency of that country’s bonds. Moreover, various factors govern foreign bonds, such as political relations, international sanctions, and hyperinflation. A disturbance in any one of the factors will affect the stock exchange and your bonds. These days, when political unrest happens in a jiffy, investing in foreign bonds means restricting your purchasing power in your home country to pay mortgages or debts.
Investments should be clear and transparent. Anything that is confusing or haphazardly presented should not be considered. Do not invest in anything that you do not have any knowledge about. You can avoid mistakes if you invest with a disciplined strategy and an open mind.
