Investing: How to Lower the Risk, part 5
By Keith Bunn Jr.
May 20, 2013
Good morning. Sorry it has taken so long getting this blog out. I had a procedure done to remove some kidney stones from my left kidney and it has taken a while to get back up and running so to speak.
Like I mentioned at the end of the last blog, I will be going over the types of investments that are just horrible and should never be bought. But first, let's review...
Real Estate is a great investment, however it is the least liquid or the hardest to get any money out of it if you need to. When buying investment property, the best way to do it is to buy it slowly and use cash to buy it out right. The reason for buying investment properties with cash is because if you don't have a tenant in there paying rent, you're not freaking about how you're going to make that monthly mortgage payment. Another way you make money buying investment property, is at the purchase, meaning you buy the property at a GREAT deal.
Annuities are nothing more than a savings account at an insurance agency. The payments you recieve from an annuity usually happens after you retire. When the money is paid out to you, it is then taxed, making this type of investment a taxed deferred arrangement. There are 2 different types of Annuities, there are Fixed Annuities (which really aren't fixed) and Variable Annuities. Fixed annuities guarantees a certain rate of return which is around 5%. These are a horrible investment long term because inflation has averaged around about 4%. Variable Annuities typically have a better rate of return because of the mutual funds that are inside of them, but the rates do vary from time to time just like all mutual funds do.
Investments You Should Never Buy
Commodities and Futures
For those of you that don't know, commodities are things like wheat, oranges, crude oil, and precious metals like gold and silver, just to name a few. Commodities are extremely risky because you never know what will come a long and cause the prices to either go way up or way down. I mean, commodities can be effected by weather, global events, or even good old fashion Fear.
Futures are even more risky than commodities. Futures are expensive to get into for one thing, but they are truly an all or nothing game of chance. Futures are where you predict what something like a commodity is going to be worth on a certain day. If you're right, you win big, but if you're wrong, you lose all your money. It truly is an all or nothing deal!
Day Trading is where you buy a particular stock at the beginning of the day and then sell it at the end of the day hoping that what you bought made some money by the time you sold it. Again, this is putting all your eggs in one basket. The funny thing is, A LOT of people do this and absolutely lose their shirts. Some even go into debt or get another mortgage on their home because they have a 'system' that they think will make them win. Lives have been TOTALLY destroyed by day trading. Don't do it!
Viaticals are where someone sells you a position on their life insurance policy because they are dying and they want to have some money to do something before they die. To give you an example; someone sells you the primary position on their $100,000 life insurance policy for $10,000. When that person dies, you get your $10,000 back, plus you also get $90,000 in profit.
Not only is this sick and morbid, it is a horrible idea, because with today's technology and medicines, we have no idea when someone is going to die. That person could be cured of what was making them sick and live another 20 years, we don't know.
I know we kind of talked about this already, but this is a topic where common sense goes right out the window. Many people believe that if our economy completely fails, we will then be using gold and silver to buy stuff we need to survive and that is just not true. Ask all those people who survived hurricane Katrina. Those areas affected by the hurricane, were locally failed economies in every sense of the word. Ask them if they used gold and silver to get the things they needed to survive. Chance are they would say, "no". Why? Because during times like that, those economies automatically go to a barter system.
Another thing to think about is why the cost of gold and silver is so high right now? What causes the price to go up or down? I mean, other than jewelry and some electronic uses we really don't have a use for them. In fact, the price of precious metals are driven by our emotions, nothing more. Think about it, when the Great Recession hit and the Real Estate bubble popped, people were freaking out thinking our economy was going to crash. That was when gold prices shot up like a rocket. Because of fear! At least when stocks, bonds, and mutual funds go up and down in value, there is a mathematical reason for it. There isn't one for precious metals.
1) Have you ever bought any of these types of investments? If so, what did you like or dislike about them?
2) Have you bought precious metals because someone told you that you would need it when the economy crashes?
3) Knowing what you know now, would you buy any of these types of investments if someone told you they were good for your investing portfolio?
The reason I do this is to give people hope and to try to inspire others. To make them think about their finances, whether they are young or old, so they can win financially.
If you have any questions for me about my posts or about your finances, you can call me at (616) 454-2046 or e-mail me at firstname.lastname@example.org. You can also find more money news, facts and ideas, on my Facebook and/or Twitter pages. I'd be grateful if you followed me. Thank you!