4 Tempting Investments You Should Avoid

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4 Tempting Investments You Should Avoid by Darwins Money Blogger_imageGiven the state of the economy in recent years, it’s no wonder that investors the world over are fed up with low interest rates and may be scared of stocks, instead seeking out “alternative investments.” There are a few specific reasons Brits may be going this route. First off, the information and advertisements for these investments may be quite compelling. Next, many people anticipate another stock market crash and don’t want any part of it. Finally, money is tight and people feel they need to take a risk to recoup money they’ve lost in the past or keep up with a rising cost of living. Here are some common investments that are popping up that you may be better off avoiding:

  • Stamps – Stamps have long been a favourite for novice and expert investors. There’s the nostalgia involved from one’s childhood, and the truth is that many stamp investors have done quite well over the years. But there’s no reason to think this trend will continue. First of all, there’s no real-world application for these articles. The only reason they’re worth anything at all is because of their rarity, not their utility. Next, now that there are such strong preservation methods and everyone’s a collector, old stamps are no longer being destroyed or lost, so it’s unlikely that the supply side would ever decline. Next, there’s no compelling reason why more new investors would enter this space. There is simply no driver of future value at this point.
  • Wine – A lot can go wrong with wine investing, especially if you’re not an expert. Often times, people are buying the equivalent of a “wine future” by paying for wine that hasn’t even been bottled yet. Sometimes those companies go out of business and investors are left with the losses. Next, wine is something that is continually being created, often with newer, more appealing brands. Similarly, there are no compelling reasons to see why average Brits would pile into wine investing, so returns are likely to be modest at best.
  • Peer Lending – A new trend sweeping the globe is peer lending, in which people are lending money to each other instead of going through traditional banks and corporate lenders. The problem is that many of the systems used to vet loans don’t do enough to deter defaults, and there aren’t adequate protections in place for peer lenders. Since so many people have entered this space as investors, it has driven down the interest rate returns to the point where it’s tough to exceed losses from defaults even when spreading your money across many loans.
  • Other Collectibles (Coins, Historical Artefacts, Art) – Similar to the rationale that applies to some of the previous categories, there are simply too many “experts” out there that can more quickly pick and choose winners and losers in each specialty. As a novice collector, you’re likely to pay much more for a given item than an expert would pay.

A final word on why all of these investments may be best avoided is that they are not liquid at all. If you own a stock or bond, you can usually sell it that day. By contrast, the investments listed here could take months or even longer to sell, and when selling, you may have to settle for a less-than-desired price just to get rid of it. These markets tend to be rather limited and the experts carry a lot of leverage.

 

 

 

The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.
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Darwin is an engineer and MBA who takes an "evolutionary" approach to finance, writing about adapting to evolving financial management, tax, investing and savings opportunities. Making more money and saving more money is an adaptive process — join the evolution! He blogs at Darwin's Money www.darwinsmoney.com and ETF Base www.etfbase.com

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