Signs Of A Poor Investment

The harder it is to make money after you pay the costs, the more likely you’ve got a poor investment choice. That’s not to say some mutual funds, insurance policies and other securities can’t overcome costs, but most don’t.

 

Even when an investment has beaten the odds and delivered, despite high costs, a buyer should be asking if it’s able to continue, because expenses almost always drag down future returns.

 

Also, costs oftentimes are hidden or buried in complex investment products. Investors need to recognise that there is no free lunch, one way or another, whether it is out in the open or buried in the details, you’re the one paying the costs, and no one would be selling it to you if they couldn’t make something on the deal. Anytime the fees are difficult to understand, you should probably walk away from the deal.

 

This is not so much about engaging in timing the market, as it is being aware of where an investment really is at the moment you buy it.

 

Studies show that investors typically bail out of an investment when it declines by more than 20 per cent from their buying point. Even if a stock takes off from there, all the investor experiences is the loss.

 

Too often, investors look at the positives without recognising the factors that could delay the success they foresee. For example, investors may love the concept behind a popular sector or business but may not recognise that institutions are shorting the stock or sector, a condition that average investors typically would want to avoid, or they look at a stock that has fallen into bargain territory without considering the reasons for the sell off and what might drive the price down further.

 

Even if your investment premise looks right for the long term, it’s important to recognise that no investment grows in a straight, upwards line, so it is important to be patient and expect volatility.

 

If you want to know whether you are being sold the equivalent of financial swampland, be sure to ask about product costs and future liquidity.

 

If the answer from the advisor comes back, “look at the great funds you have access to”, or “the product is designed to provide investment discipline”, run away.

 

If you ask enough questions and the responses are nervous, worried or aggressive, there’s most likely trouble. If everything doesn’t make sense, then it’s probably a bad investment.

 

When the people supporting an investment aren’t giving you a straight answer, they’re hiding something, and it most likely has something to do with the investment costs and/or liquidity.

 

If the advisor or sales person seems desperate, by continuing to hound you for an answer, calling you at all times of the day, it is likely a good sign to walk away from the deal.