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5 Investments Which Might Be Better Left Alone

Michael Singer - Monday, January 25, 2016

Wisely investing includes amongst the cornerstones of building up wealth, and having a diverse portfolio is a critical part of a strategy. As it’ll come to picking assets, it is vital to have the ability to differentiate the bad from the good. Below are 5 investments which might be better left alone:

Alternative Investments

While they are seen as a method of hedging against risk, alternative investments may be challenging for the average long-term investor to navigate. They’re usually more complicated in nature and without fundamental knowledge of how the various options work, it is too simple to select the wrong one. And not just that, yet such investments are highly illiquid, and they usually experience more volatility than mutual funds or traditional stocks.

Non-traded REITs

While generally, REITs usually perform well as far as performance is concerned, non-traded REITs oftentimes do worse than their publicly traded counterparts. Also, they provide less liquidity than traded REITs due to investors being required to wait until an underlying real estate is sold to obtain any returns on an investment. They usually come with higher fees.

Variable Life Insurance

Variable life insurance, as an investment product, may be a problem in more ways than one. Investment options, for example, might be restricted to a handful of funds-- that may be a downside if they are serious under-performers. Also, variable life policies tend to come with high fees-- that quickly can diminish returns you witness from an investment.

Actively Managed Funds

The objective of an actively managed fund is to beat the market concerning a certain benchmark, yet the issue is they do not always meet expectations in performance. Also, they usually carry higher fees and provide less tax efficiency as compared with something such as an ETF or index fund.

Penny Stocks

Penny stocks will be subject to less regulation by the U.S. Securities and Exchange Commission, meaning it may be hard for investors to gain a clear image of the business behind the stock. It may be challenging to gauge how well a penny stock is going to perform without reliable information. Such stocks also are more prone to price manipulation, leaving investors susceptible to "pump & dump" scams.

 

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