While there are a lot of options to consider for making good investments, there are an equal if not greater number of investments that no one should consider. Often, these investments seem like a “sure thing,” but they are anything but over the short or long term.
To avoid common investment errors, always check with your financial planner before buying into anything. In addition, be sure to watch for:
- Lack of specifics – Carefully check any investment prospectus and take the time to understand the numbers. Some investment information is not really much more than hype and potential, so look for specifics and realistic measurements of the type of growth you can expect on your investment.
- Overly risk-adverse – There are different times in life when being highly risk-adverse is important. Generally, the closer you are to retirement, the less risk you should take with investments. However, focusing on very low-risk investments means little return, limiting your ability to generate the returns needed for your long-term financial goals.
- Day trading or penny stocks – Unless you really know the stock market and are prepared to spend time learning market trends and indicators, day trading and penny stocks are poor investments. Relying on “hot tips” off the internet is another big mistake as these are typically not well-researched and are promoted by people with limited knowledge or proven market success.
- Playing the real estate market – This is similar to trading. Unless you really know what you are doing and what the market trends are likely to be for a given location and property type, it is a risk. Television shows about flipping houses don’t show you the possible risks involved, particularly if you are gambling with your own retirement money.
Never consider an investment that is recommended by a friend, family member, or a business colleague on face value. Do your research, talk to your financial planner, and evaluate the risk and possible rewards with other options available.