The struggling economy has everyone second guessing their financial portfolio’s and looking for ways to have a more secure investment plan. Regardless of the economy there are some investments to avoid at all costs.
Hedge funds are exclusive clubs that promise higher than average returns. Before the financial bubble burst these companies, usually privately-owned would pool members funds together and reinvest them into various markets. The trouble with hedge funds is, they are not regulated by the SEC. Anyone with any sort of business savvy and enough capital can open a hedge fund. Despite the high risk, they are attractive because of the lucrative returns for the managers and the members. However, if the company leverages poorly, the investors carry all the risk and are left with zero, not even their original investment.
Penny stocks are another high risk investment. They are called penny stocks because they are sold on what is known as pink sheets and are usually under $1. These companies have not yet proven their financial solvency and there is very little due diligence completed on the company. This is why they are unable to trade on the regular stock market. These stocks are volitale and it is easy to come out on the losing end in more debt than when the first trade was made.
Payday loans fill a unique void in the banking products market. Banks and credit unions are choosy about who they loan money to, including their own members. This left many people with less than stellar credit unable to get cash during difficult times. The payday loan industry offers unsecured cash loans with few restrictions and the money is usually available within hours of approval. The loans are typically repaid the following payday, hence their name. The trouble with these types of loans are their high interest rates and processing fees. This leaves the very people they serve vulnerable to needing another loan to carry them over until the next payday. It can become a vicious cycle of loans and fees for the borrower.
In the cyber-world there are a myriad of ways to lose money. HYIP’s or High Yield Investment Plans/Programs are much like penny stocks except there usually is not a company to invest in. Unfortunately, HYIP’s are usually thinly veiled Ponzi schemes. The lure, like all high risk investments, comes with a high return. There is little to no information on management or details on how the funds will be invested to guarantee such a high return. Money from new members pays the old members, until the plan can no longer support itself. Only those who enter early and leave early keep their money.
Lottery tickets, dice games, poker, casinos, these are the trappings of problem gambling. There is absolute debt with gambling. What starts as fun can leave the gambler in debt and in some cases homeless. The game of chance combined with skill is the lure for gamblers. The next round or game is always sure to be the winning one in the gambler’s mind. Unfortunately, because it is a game of chance, the odds are favorable towards winning.
There are many investment options available to choose from depending on means and risk aversion tolerance. Choose long term investments to avoid debt and heartache.