Investments That Could Be Financially Dangerous
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We all want to make a quick buck, but of course that is easier said than done. Investing should be an integral part of your financial planning, but be aware that not all investments are created equal, and some can even be financially dangerous. Always do your research to ensure you aren’t making the worst investments possible, and ask yourself: Are you prepared to take a calculated risk? Here’s a list of investments that could be financially dangerous.
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Investments that seem too good to be true
If an investment seems too good to be true, it probably is. Be wary of promises of constant large returns or businesses propositions that don’t add up. Common sense is your best defense — there is no secret formula to maintain consistent large returns as the market fluctuates over time. Don’t take advice just from your friends or family — instead, always do your own due diligence and ask for references, documentation and do thorough research.
A new car
Everyone has heard the saying that a new car loses value as soon as it is driven off the lost, and unfortunately, it is mostly true. New cars depreciate and lose value at different rates based on the model, miles and the work they had done in them. Luxury cars and exotic color cars usually depreciate even faster. In addition to the loss of value, you also need to consider the cost of ownership including repairs and gas.
The same depreciation logic also goes for a boat, RV or motorcycle. In all of these cases, your best bet is usually to buy a certified preowned vehicle.
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Restaurant
Owning a restaurant seems like a fun idea — you can preside over the place, entertain your friends and get your favorite meals for free. That notion is the exact reason why most restaurants fail. The restaurant industry is notoriously fickle and difficult. More often than not, people lack the industry experience or real business background needed and open a restaurant because they are great cooks or think it would be fun. Before investing in a restaurant, do your due diligence on the business plan, run the numbers and look into your partners and managers’ backgrounds.
Real estate
The 2008 crash was a harsh dose of reality to real estate investors across the country and was a brutal reminder of the volatility of the real estate market. Investors need to remember there are no guarantees in real estate.
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If you are buying a home for yourself, even if you are financially secure with good credit, savings and a large down payment, you still need a steady job with fixed income, savings to cover repairs and a large emergency fund to keep your home above water.
An entire genre of home makeover television reality shows has cropped up and make flipping homes seem easy, but that is far from the truth. If you plan on flipping a house for a quick profit, you need to be prepared for construction issues, delays, going over budget and of course the fact that the market could take a dive.
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