Updated: October 10, 2020
I’ve often been asked what’s the best investment to buy today, but have you ever asked yourself, what’s the worst investment?
For today, I will answer that question in two ways. First, I’ll give some real and practical answers. Then second, I’ll tell you about a more general answer to the question.
So are you ready to learn? Here we go.
What is the worst investment?
I believe that investing in something that will give you nothing more than 6% worth of your money per year is bad.
“Hey, my time deposit only gives me 4% per annum interest, so does that mean it’s a bad investment?”
Yes! Time deposits, in general, are bad investments – because they don’t have the ability to make your money grow higher than inflation (which is around 6% in the Philippines, but it’s usually higher – depending on your lifestyle).
Now before you call your bank and cancel your time deposit accounts, please remember that TD’s and other similar cash deposit accounts exist for a purpose – and that is, in my opinion, as a safe haven for your short-term funds.
That means, your time deposit investments should only have your emergency fund and your extra cash which you plan to use within the next two years.
If you have money that you can afford not to spend for more than two years, putting it in a time deposit is a bad investment.
Is there a worse investment?
Well, putting that money in a savings account, which earns even less interest. Or putting your money under the bed mattress, because that earns no interest at all.
But seriously, what’s the worst investment?
Investing in products that guarantee “high-yields with low-risk” – because I’m 100% sure it’s a scam.
Never, ever, ever, believe someone who promises more than a 10% return on your investment every month. When you hear someone tell you that, turn around and run.
Please note that the most important word there is “promise” – because a 10% or higher return on an investment every month is actually possible – but they’re all high-risk.
Examples of high-risk investments that can give you more than 10% return on your investments are forex, stocks, real estate, network marketing, and of course, putting up your own business.
All those are legitimate investments that “has the potential” to give you high-returns, but they are not guaranteed. And one reason why you should always know your risk tolerance before investing.
What is the worst investment?
Now for the more general answer, but actually more important.
The worst, baddest, I-guarantee-you-will-lose-money, type of investment you can make is putting your money in something you don’t understand, or at the very least, have no interest in understanding.
Consider these statements:
- “I heard that the stock market is making new record highs lately – so I think that’s where I should invest.“
- “My friend is earning P20,000 a week from this multilevel marketing company. I’ll join him so I can earn that much too.“
- “This condo unit is being sold at an affordable price, I’ll buy it and have it rented so I can get passive income.“
But you’ll be making a big investing mistake if:
- You don’t know how the stock market works. And you find those company reports and price charts intimidating and boring.
- You don’t like selling and talking to “people you don’t know”. And you can’t even imagine using the products of the MLM company yourself.
- You have zero knowledge about property management. Or worse, you don’t even know how to estimate the market value of a real estate property.
How to avoid making bad investment decisions
Now that you know what the worst investments are, it’s time to give you a concrete solution on how you can avoid making them.
The answer is simple:
Work on increasing your investing knowledge and financial I.Q.
Remember that learning is also a form of investment, and it’s an investment that can give you unlimited returns! So read books, attend seminars, seek out mentors – or in simple terms, start being hungry for knowledge.
And that, my friends, is the best way to avoid the worst investments.
Photo credit: Sharon Pruitt