Wise investors are familiar with a few different types of investments and use that knowledge to make money in various ways. There are a lot of baskets to choose from when investing, which is why it is crucial to understand all the available options before starting to build your portfolio and invest your money. Below is a list of investment vehicles that are more expensive than you realize.
1. Commodity Features
Before venturing into an investment, you must understand the risks and mechanics of commodity futures trading. Just like the millions of people who sustain injuries on highways each year, such investments present a high risk for individual investors due to the following:
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- Minimal Investor Resources: Specialized trading companies, including hedge funds, investment banks, and commodity trading funds, spend millions of dollars acquiring expensive hardware and software to analyze and watch the commodity market. The systems are tested and programmed by market experts and mathematicians to recognize trading patterns with the profit opportunity and enter transaction orders into the exchange for execution. Few people can afford to make the significant capital investment that is required to compete with these larger trading entities.
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- Investor Psychology: The ability to maintain and initiate an investment position depends on an investor’s risk resilience and profile. Losses are often inevitable despite the trader’s experience and knowledge, as any trade, regardless of how well thought out, has the potential of becoming a loser. Most people think that the best traders have winning trades only and do not lose any money, which is not valid.
2. Collectibles
Collectibles come in various shapes and sizes, ranging from baseball cards, stamps, antiques, and cars. Some people collect these goods as an investment, while others do it because it makes them feel good. The idea is that if something is collectible and rare and holds meaningful value, it is more likely to be more valuable in the future. Below is a list of reasons you should not have such assets in your investment portfolio.
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- Speculation: Investing in collectibles is considered a speculative bet rather than an investment. Investing in them means you are making a bet that you will secure a market and a buyer willing to pay more than you paid for the collectibles in the future. Collectible items, after all, are worth the amount of money the buyer is willing to pay for them.
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- Scams: The collectible market is full of scams. Con artists know that collectibles come with a high price tag, and they often target the industry and make knockoff versions of precious assets. These fakes to the average investor may look natural, but when it is time to sell, you may find that the collectible is nothing more than a pretty paperweight. Such scams usually target the elderly who trust con artists thinking they are saving money. At least 55% of seniors in retirement communities have stated that their quality of life is improving yearly.
3. Venture Capital
Most startups seek investment from venture capitalists, but many fail to offer high services and products that the public needs and wants. Even if the startup’s product is desirable, poor marketing efforts, management, and location may deter a new company’s success. Low management transparency forms part of venture capital risk as most startups are funded by people who are not business-minded. Venture capital investments usually have high minimums, which challenges some investors. If you consider investing your money into a venture capital fund, you are advised to do your due diligence to devise ways of saving money.
4. Timeshare
A timeshare guarantees a place to stay if you love to visit the same spot yearly. It is a shared vacation property where multiple buyers pay to stay at a property over a period of years. Reports indicate that 53% of timeshare owners spent more than $10,000 on their timeshare. The American Resort Development Association (ARDA) reports indicate that up to 10 million households own timeshares. Some people see it as a poor use of money, while others see it as an investment, and those thinking of buying a timeshare should know about the benefits and risks. Since the timeshare offers you a place to go regularly, you cannot make money off the timeshare, meaning the return on investment does not come in dollar amounts. It might be a good investment for saving money, but it does not earn you a financial return in the traditional sense of investment.
High-risk investments have a high chance of high returns and a high probability of loss. While some are enticing, you are advised to do your homework to learn about the risks and how they can impact you financially.
