Investments to Avoid

by Dual Income No Kids on April 1, 2008 · 0 comments

Hi All,

There’s a lot of discussion on the internet about things to improve your wealth, however there is less advice on whats sorts of investments you might to think about avoiding. Here are four kinds of assets you should consider staying away from.

1) Limited Partnerships:

Limited partnerships are direct investments in business ventures sold via a broker. Typically when you buy an LP you passively invest money in a particular venture, typically one run by a general partner. This doesn’t sound like such a bad set up, but LPs typically have a number of problems. For example, if the LP is sold through a broker you usually pay a 10% commission. The management of the LP usually siphons off an additional percentage as well. In the 1980s a number of LPs went bust and left their investors with nothing. Finally, in some cases, LPs have propped up their yield by paying supposed investment returns out of capital, acting essentially like a big Ponzi scheme. Definitely take LPs with a grain of salt.

2) Penny Stocks:

Penny stocks are companies that trade for under $5 dollars a share. There are a couple of problems with penny stocks. First, there is a reason the stock is trading under 5 dollars a share, and it usually isn’t because the company is awesome. More often than not the firm is having financial problems. Hint: think Bear Sterns and 2 dollars a share.

The second reason why penny stocks are generally suspect is because boiler room pushers love them. If you don’t know what a boiler room is, its a fly by night sales organization that sells questionable securities. Typically these guys like penny stocks because they are thinly traded and therefore easy to pump and dump for a quick profit. Stay away from stocks under 5 bucks, they attract sleazy companies.

3) Time Shares:

Time shares are lousy investments. With time shares you buy a week or two per year of ownership of a specific property, usually a condo in a resort area. Time shares are rotten investments because they are loaded with fees and are a very poor value for your dollar. For example, if you pay $4,000 for a week, that’s $208,000 on an annual basis – just to have a couple of weeks vacation. For that much, you could probably buy your own condo. Plus more often than not, you are footing the bill for the administrative and sales commissions.

They sell time shares on the strip in Vegas. That’s an indication for you right there.

4) Stuff From Target:

We like Target, we think they have some great products. That said, consumer goods are not investments. Don’t fool yourself. If someone says “Lets invest in a new couch” or that cheap bookcase would really be an “investment” in your quality of life – don’t buy it. Stuff is not an investment.

Best,

James&Miel

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