Today I thought it might be instructive to look at a few things some people call investments, but which I would never invest in. I happen to be of the opinion that too many things are bought and sold on the premise that “it’s a good investment” when in reality they are not.
Here are six classes of “investments” which I would never invest in – at least not with my own money. Actually, I wouldn’t even invest someone else’s money in any of these things.
- Exotic cars – Wouldn’t it be great to have an expensive garage full of expensive cars? Imagine flipping the switch and lighting up an immaculate room full of beautiful exotic cars. What a great way to impress your friends. My friends would be equally impressed with the insurance payments; the upkeep on cars that aren’t driven much, if at all; and the security you’d surely want to have in place. If you can afford to buy cars, or any other uber-expensive collectible for that matter, as if they were Pez dispensers then I say go for it. I wouldn’t want the headache and the expense and the fear that my expensive investment might not appreciate in value.
- Timeshares – Have you ever wondered why timeshare sellers will wine and dine you and give you gifts just to get you to take a vacation? It’s all just tactics designed to lure you into their trap. Once the sales pitch starts it’s hard to escape. You’ll hear about what great investment timeshares are. You’ll hear how these properties are appreciating in value and how vacationers are lined up to rent them for weeks at a time. You’ll hear how easily you can trade yours for a time in other A-list locations. The question I have is if they’re such great investments, why am I being sold the investment and why am I not competing with other investors to purchase? Shouldn’t I be the one paying to visit rather than the other way around? Timeshares are generally not good investments. On-going fees and expenses generally eat up more than any income the property will generate. And even if the property appreciates in value, the timeshare’s value may not. Buy a timeshare as a vacation expense. You’re kidding yourself if you think it’s a good investment.
- Penny stocks – You’ll probably never encounter a penny stock on your own. They’re so small and off the radar that most investors would never know they’re there at all unless someone points them out. Beware, the person pointing them out to you is probably participating in a pump and dump scheme. Unscrupulous brokers will tell you a marvelous story about how XYZ company’s stock is about to take off. Something is about to change in this company’s business that’s going to make this company’s stock rise. You need to get in early so you don’t miss out. These scams can be well-coordinated, making them harder to resist. If enough people buy a thinly traded issue its price will rise. The pump is the process where brokers talk it up. They tell the story to as many people as will listen. Once the price starts to rise the story takes on a life of its own. The stock may double and double again. When the pump stops and the story fades, however, the scammers will have already dumped the stock at a huge profit. Without a story or any real news, the stock quickly falls back to the floor.
- Paintings – Think you have an eye for art? Not I. This one’s a lot like exotic cars for me. The difference is there are a lot more very expensive and not recognizable artworks out there. You’d probably recognize an expensive classic car. Most of the really expensive art I’ve seen in museums doesn’t look expensive at all to me. Beauty is in the eye of the beholder. Investing in paintings, or art in general depends on the existence of a market into which to sell (hopefully) appreciated artwork. I put paintings and art in the category next to timeshares. If I see something I like I might want to own it, but only because I find it beautiful to look at. I would not buy it as an investment.
- Precious Metals – Gold. Who wouldn’t want to have a few hundred pounds of gold in the back of his closet? Well, would you keep such a valuable commodity in such an insecure place? Probably not. You’d probably pay someone else to store it and protect it. This is generally the way gold is owned. Whether you own actual pieces yourself outright or have a claim to some amount of a larger store of gold, it’s located somewhere where someone watches it full time to protect your investment, all for a fee. The real profit in gold is in renting safe deposit boxes and providing security. Owners of precious metals enjoy the luxury of owning something which may never appreciate at all. But if you do take possession, it’s sure nice to look at.
- Memorabilia – Got plenty of room to build the definitive 1904 World’s Fair memorabilia collection? Knock yourself out. If you’re truly knowledgeable about some field where collectibles can be bought and assembled into collections which are more valuable than the sum of their constituent items, collectibles might be for you. Is this really investing though? I like to think of it as turning a hobby into a business. That is if you can consistently make a profit at it. And if you can, then you should. From there you should invest the profits from your business.
There you have it, and even half-dozen things I wouldn’t invest my own money in. That’s not to say I might not buy one or more of these things just for the enjoyment of having it. I just would not delude myself into thinking any of them are investments.