Jewelry is rarely sold for its true value.
You pay a premium for the design, the
overhead of the business and normal
profits of the dealer, so it's actually
bought at a loss.
The phrase, "bull market" has been running through Wall Street circles for all of 2011. As the stock market continues to rise with no end in sight, veteran investors sometimes say that you could close your eyes and throw money at just about anything and the money will multiply many times over.
Although it may be true that in bull markets money seems to grow on trees, there are always investments that simply don't work.
1. Time-Shares
What if your favorite hotel chain contacted you and told you that it has a great deal for you, and all you have to do is prepay your hotel charges for the next two years. That's how popular financial advisor Dave Ramsey describes a timeshare on Money Matters. You would be beter off investing that money rather than giving it to somebody else to hold it for you.
The concept is simple: You are a partial owner of a property, in which you purchase a cetain amount of time each year. But when you don't want to use the property anymore, you can't simply stop paying. Instead, you have to sell your share.
Time-shares are often sold at a 40-60% premium to the true value of the property and, much like new cars, they lose a considerable amount of value. If you can find a buyer for your share (which is often quite difficult), you will lose a lot of money in the deal. In short, you buy high and sell low - exactly the opposite of good investing.
2. Savings Accounts
A savings account isn't a bad investment; you aren't going to file for bankruptcy because you invested in one. Bu, if the game of investing is won by making money, you're going to come up short, simply based on inflation alone.
Each year, the price of goods usually go up, and if your money doesn't grow at least at the same rate as inflation, you will be worse off. The average rate of inflation (the amount of value your dollars lost) was 1.6% in 2010. The average of the last 10 years is about 2.5%. Savings account rates in 2010 didn't pa much more than 1% in 2010, leaving you with a loss of .6% on your real savings. Of course, savings rates are likely to rise in the future, but the rate of inflation will rise with it.
3. Stock Advice by Email
"Great news! I just found out that on Friday, XYZ Labs is announcing a major break-through in a drug that treats cancer. You need to buy as many shares as possible, and they're only 50 cents per share."
If you're eve received an e-mail like this, you know about the pump and dump. The information in the e-mail is completely false, and if it were true it would be considered insider trading. You would be fined and possibly sent to jail if you profited from this information.
The pump and dump scheme is simple: Somebody sends this e-mail to a large amount of people. They "pump" up a stock that they own shares in by saying that it is going to see a big gain in the next few days. If enough people buy into the stock because of the email, the share price will surge. The person who sent the e-mail then sells the stock a few days later (the dump) at the elevated price for a profit. You're left with a big loss once it becomes known the news is false.
4. Jewelry
It's true that diamonds and gold have value that appreciates over time, but unless you're an investor by trade, buy jewelry to enjoy rather than to make money. First, jewelry is rarely sold to you for its true value. You pay a premium for the design and normal profits of the dealer, so it's bought at a loss right away.
Next, jewelry often has sentimental value to the owner. People don't sell jewelry unless they need money fast, and when they do, they head to a pawn shop and sell it for a fraction of its value. Finally, stocks have a state value because of the stock market. No such market exists for custom jewelry.
5. Investments You Don't Understand
In the early days of the financial crisis that has severely impacted our economy since 2008, complex investments called credit default swaps were partly blamed for the large losses and the bankruptcy of several large financial institutions. Later, it was found that even many professional investors knew very little about how they worked, or how they're valued. Reading financial articles of the time, it was clear that very few people knew how these derivatives worked.
You will most likely never partake in investments such as these, but you will probably be basked to invest in something that you don't understand for your retirement account or private portfolio. Investors of all levels of experience has lost hlarge amounts of money investing in something that they don't understand. Expect to spend a large amount of time learning before you invest for yourself. If investing were easy, everybody would do it.
The Bottom Line
All investments come with risk, but some are more dangerous than others. You work hard to earn the money you have, and the best thing you can remember is the old adage that professional investors remember every day: It's a lot easier to lose money than it is to make it.
Reference: www.investopedia.com