10 Risky Investments
To some people, losing a dollar on a lottery ticket is an acceptable risk. To others, losing a few million dollars on the chance that a cup of coffee will cost more next year is an acceptable risk. The idea of risk in investments is largely a matter of perception.
Even so, some types of investments consistently make more money than others. Other types of investments stand a greater chance of losing money or holding steady. In general, the higher the risk of loss, the higher the chance of good returns.
"It really depends on a person's tolerance for risk and perceptions of risk," says John Grable, professor of personal finance at Kansas State University. He adds that it would be difficult to find a list of definitively bad investments.
Indeed, for every investment you place on a list, you'll have hordes of investors reporting that they made money or lost money on that particular item. The key is that while we all have plenty to gain, in tough times we tend to think twice about what we lose.
1: Any Investment Pitched as a Sure Thing
Want to find a legitimate investment? Look for evidence that the company or the fund has had a bad year.
Bernard Madoff claimed that his fund showed returns of 10 to 12 percent a year, every year. In hindsight, experts say those figures should have been the first sign of trouble for those who lost millions of dollars in the high-profile Ponzi scheme.
2: Futures and Options
When it comes to futures and options, Eric Tyson, author of "Investing for Dummies," has a simple definition for these types of investments. "Basically, they're gambling instruments," he says.
3: Microcap Stocks
So-called microcap companies have limited assets, and their stocks trade at $3 to $5 a share. They usually aren't traded on the major exchanges, and because of lower reporting requirements to regulators, the trading of these stocks can easily be driven by fraudulent schemes.
4: Bank Accounts
If you're really afraid of losing your savings, you might choose the next best solution to burying money in the backyard: Put it in an interest-earning passbook account.
5: Art
Financial planners have long recommended that well-heeled investors buy art to spread their wealth around. In tough times, some advisers are changing that view, unless a buyer is willing to hang on to a piece for a long time.
6: Timeshares
You go to a sunny resort, and you never want to leave. As you walk through the streets, plenty of salesmen offer a way to return to paradise at an amazingly low cost. Just come to our seminar, they say. Here -- you can have tickets for a boat ride, too.
7: Cash Value Life Insurance
Life insurance falls into two general categories: term insurance and cash value insurance. Term insurance is something most people can understand: You pay a premium, and upon the death of the insured person, you collect money.
8: Precious Metals
So you're hearing a lot of talk about gold prices going up. Nothing else seems solid, so why not buy something that you can touch and see? Financial planners give several reasons: storage costs, insurance costs and lack of short-term gains.
9: Collectibles
You have this car, and it's a dream car. Your uncle bought it new in 1955 and never drove it. It's carefully covered and stored in a garage. It has never touched a road and never made a memory. You're storing it in hopes of a big payoff that may never come.
10: Lottery Tickets
In a survey conducted during good economic times, pollsters found that a majority of Americans with incomes under $35,000 per year thought that the lottery was a better route to saving $500,000 than saving and modest investing.
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