One of the best investment strategies you can have is one that is centered on not losing money. Knowing what not to invest in can actually save you more money in the long run than focusing on the best options. Not all of these things are written in stone, but it is advisable to proceed with extreme caution if you are confident in an investment, and made sure you have done as much research beforehand as you can.
Here are a few examples of things to avoid investing in:
1 - Cloning
No, not that kind of cloning! Cloning, as in copying another successful fund’s investment ideas, something that is becoming quite pervasive among a lot of investors these days. The problem with this is that some ideas are simply not based on the right valuations, successful investors don’t always do all their homework, no matter how successful they are, they could just be lucky.
2015 was a terrible year for cloning. And 2016 is looking to be the same. Investment strategies simply require you to do your own work.
2 - Poor Performing Businesses With “Valuable” Real Estate
Investment pitches whose valuation is based largely on a company’s real estate value is something to avoid. This is when an investor will admit that the business itself may be poor, but it’s value can be thought of in terms of real estate. Except what they don’t tell you upfront is that this money is going to be locked up in a situation still many years away and until then, the poor business will eat up a large portion of this value through its less than successful operations. Retail operations and healthcare are good examples to watch out for.
3 - Trusting Investment Brokers Advice
Almost 75% of all investors told a Gallup poll that they paid other people to advise them on creating their financial plan. But where that advice comes from makes the world of difference. Financial advisers, brokers, and planners have completely different credentials - and, more importantly, different obligations to their clients.
Some of them operate under the fiduciary standard, meaning that they are required by law to put their clients’ best interests first. Like, for example, by disclosing any conflicts of interest or seeking only low-cost investments if that is all you can afford.
Other brokers, who buy and sell securities, often calling themselves financial advisers, should be avoided when it comes to investing. They operate under some very different rules, none of which are legally binding. First and foremost, they are salesmen, and are required to suggest investments for a client based off of their age, risk profile, investment goals and other factors. Investments brokers recommendations often come with higher fees or commissions that can be quite exploitative of their clients.
If you are seeking professional help with investing, you should definitely find out upfront how they are going to be getting paid in the transaction, and then consider how this might negatively influence their suggestions.
Last But Not Least
Run a background check before you commit. One of the easiest ways to make sure the adviser you are planning on hiring is trustworthy is a simple background check. Brokercheck.finra.org and adviserinfo.sec.gov are both great online resources to do just that. They can help to shine a light on their professional history, offer information on their registration, a history of their previous clients and whether or not they have any disciplinary records, among other things...