04 Nov Five Investments To Avoid Like The Plague
Write this down – “never EVER get investment tips around a barbeque.’
Generally speaking, I am happy to talk about money and investments.
I love talking about financial planning because it is what I am passionate about.
I speak about it in the office, at home, at the sporting club, over dinner with friend and family.
However, there are times when money should be avoided. One of those times is whenever you are outside of ten metres of a working barbeque.
There are some crazy investment ideas (and ideas in general) that get thrown around a barbeque.
I don’t know if it is the beers or the smell of burning sausages that turn what are normally dumb ideas into good ones.
You know the ideas I am talking about, the one where “Steve’s mate” has “just made a ton of money doing X”, those investment ideas.
I have been in financial planning for over seven years now. I am the first to accept that there are “multiple roads to Rome”.
Some people have made money in shares, while others have made money in property.
Nonetheless, there are a few investments which I would avoid like the plague.
I would never ever recommend these sorts of investments to clients and I would strongly recommend you should not do.
- Cash and Term Deposits
Cash and term deposits are not long term investments. If you are looking to invest for longer than two years, you should NOT have your funds in cash or term deposits.
If we go back five years when term deposits were at 7-8%, then I would agree they were a reasonably good and safe investment.
They are a secure rate of return, they are simple to understand and they are protected by the government.
Times have changed, and so should your investment strategy.
Interest rates on cash and term deposits are insulting. You have worked too damn hard for your money to earn a term deposit “special rate” of 2.75% over nine months.
There are better options out there. There are conservative investments which have generated between four to six percent with little downside risk.
You do not need to put your funds in the sharemarket if you are a conservative investor.
If you have a large sum of money currently sitting in cash and term deposits, speak to a financial planner about your options.
You deserve more than 3% on your hard earned money
- High Rise Apartments
Everyone knows that the moment you drive a new car out of the shop it drops 20% in value.
I would argue a high rise apartment (more than 10 stories) does the same thing, especially if it is located in a CBD.
There are a few issues with high rise apartments.
Firstly, there are massive commissions (in excess of 5% of the purchase price) on real estate agents and developers to sell these apartments.
Secondly, high rise apartments are popping up in all capital cities and now in regional areas as well. If the supply keeps increasing, the value of your apartment is not going to increase
Thirdly, it is harder to sell a high rise apartment. Even though most of our real estate buying is done online, buyers are still drawn to a “for sale” sign at the front of someone’s house.
When was the last time you saw a ‘for sale’ for a twelfth story apartment?
Finally, the quality of apartments has dropped dramatically in an attempt to keep prices down.
I am not claiming to be a building inspector here, but even I know there are going to be some long term ramifications as a result of this lack of quality.
My advice, stay away from high rise apartments as an investment.
- Peer To Peer Lending
While I was at the bank, I met a client who was earning 9% in France (she was a dual citizen) which in her mind was “risk free” and “fee free”.
It was a scheme called ‘Peer to Peer lending’ and she wanted to know if the bank offered this as well.
What is peer to peer lending? You know on the TV the ads for pay day loans like Cash Converters and Nimble.
Peer to peer lending is giving money to those sort of organisations so they can lend it out via their distribution channels.
The headline returns look great, you can earn between 6% to 15% return on a two to three year investment “fee free”.
But let’s be honest, this investment is anything but “risk free”.
These sorts of loans are provided to people who do not qualify for credit via a bank. These customers are higher risk of not being able to repay the funds.
Especially, in the case of short term loans, there is often no security, meaning there is a reasonable chance you will lose your capital.
Personally, if you were looking to earn between 8-12% long term, I would invest in a diversified share portfolio or managed funds. There is virtually no chance of losing 100% of your capital.
Peer to peer lending is high risk. Proceed with caution.
(This is the advice I provided to the customer at the bank, but she didn’t like my advice and gave me a bad review on her feedback survey. Oh well, her loss if it goes wrong).
I am happy to admit I do not understand cryptocurrencies.
I knew that a bubble was occurring in late 2017 when the price of Bitcoin and other cryptocurrencies went through the roof!
People were jumping into these investments with little to no understanding of how cryptocurrencies worked (like me).
A lot of these people have been burnt as Bitcoin is down nearly 50% between January 2018 and September 2018.
Be very careful investing in markets where logic gets thrown out the window.
There was no logical reason for Bitcoins meteoric rise and there was no logical reason to invest at those price levels.
It was clearly going to crash once the hysteria died down.
As Warren Buffett says “Be greedy when others are fearful, and fearful when others are greedy”
Now that the price is down, it may make sense to re-enter back into bitcoin.
But again, I don’t understand how it works and therefore I do not plan to invest.
I know a lot of people who make lots of money in Forex.
But let’s make something clear here – forex (and other day trading investments) is NOT an investment, it is an occupation.
Successful traders tell me two things:
- You must be a psychopath to be successful in trading.
For example, if you hear that 10,000 people died in a Japanese earthquake, your first reaction better be to sell/go short on Japanese investments.
If you hear any news, either good or bad, your first reaction must be “how do I make money out of this?” If you show any empathy or emotion, you will lose money fast.
- If you want to be successful as a trader, you must treat this as a full time job.
It means staring at computer screens for hours upon hours upon hours on end waiting for that one moment for a great trade to come through.
No Facebook, no music, no screaming kids in the background, no coffee breaks, 100% focus and commitment.
If you cannot provide this, you should not be a trader.
Again, I know there are plenty of successful traders out there and you can learn to be one too.
But treat it like a university or trade, it is your occupation, not an investment.
If this is a topic that you would like to discuss in more detail, please go to www.MasterYourMoneyNow.com.au/getstarted to book in your complimentary 30 minute strategy session.
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Disclaimer: This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs. Past performance does not guarantee future returns.
Chris Carlin is an Authorised Representative (No. 1235031 for financial services and No. 514748 for credit) and Master Your Money Now Pty Ltd ABN 65 627 229 681 is a Corporate Authorised Representative (No. 1265677 for financial services and No. 514747 for credit) of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523