The 3 Worst Investments You'll Ever Make

We all make bad investing decisions at some point, but these these investments are likely to disappoint you in a big way over the long run.

Jul 13, 2014 at 9:22AM

I can freely admit that I've made some pretty bad investments over my lifetime. Whether it be a poor stock selection, lending money to that friend who just doesn't pay you back, or buying a lemon of a riding lawn mower (still sore about that one!), bad investments will happen. It's how we react and respond to these bad investments that will define our success as investors.

However, there are some investments that almost always turn out to be losers, yet people will almost always view them as "investment" opportunities. These are what I believe to be the three worst investments you'll ever make.

Your primary house
I can already predict a bevy of welcome disagreements in the comments section below, but viewing your house as anything more than a place to live is generally a bad idea.

Www
Source: Alan Cleaver, Flickr.

The problem that most investors are having is that the housing bubble is still fresh in our minds. We remember how easily housing prices doubled over the course of a decade and we suspect that it could happen again. The truth of the matter, though, is that home prices have historically outperformed inflation by a very, very marginal amount.

For the 100-year period between 1890 and 1990, inflation-adjusted home prices rose by just 0.21% per year based on data from Robert Shiller in his book, Irrational Exuberance. At this rate of return it would "only" take about 343 years for your investment to double in real money terms. For baby boomers, growth has been even more anemic. Between 1950 and 1997 inflation-adjusted home price growth was just 0.08%. If doubling your money every 900 years does it for you, then you're in great shape! As for me, I'd like to see a return on my investment before, you know, I turn 940 years old.

A house is a place to live. If you're talking about purchasing additional properties beyond your primary residence to generate cash flow, then a home could be a worthwhile investment. However, the primary residence that you call home, for which you pay the upkeep as well as property taxes, is certainly not something you should be including in your retirement nest egg.

Your car
I've said this before and I'll say it again: Buying a car is an investment in fun and convenience, and not an investment you're likely to make any money on.

Www
Source: State Farm, Flickr.

Regardless of whether you buy or lease, chances are you're going to be throwing money out the window to enjoy the luxury of owning a car. As soon as your car leaves the dealer's lot, it begins to depreciate in value. Leasing can actually make things worse, since you're paying for a car you technically have no vested interest in. Should you choose to keep the car when your lease is up, you'll usually wind up paying more than if you had just purchased it new in the first place.

Luckily, there are a few things you can do to mitigate the losses you'll sustain when purchasing a vehicle. To begin with, purchasing an in-demand vehicle with a high resale value will help you recover some of your initial investment when you sell your vehicle. According to Kelley Blue Book, just 10 cars were still worth half of their MSRP value after 60 months.

Secondly, consider paying off your vehicle as quickly as possible. Although the allure of financing a car over 60 months or longer might seem appealing given the low monthly payments, the interest you might pay on that loan could drastically increase the bottom-line price you're paying for a car.

Thirdly, buy within your means. Your car is an investment in fun and convenience -- you're not buying it to double your investment, unless you're specifically after a rare classic car. Staying within budget will allow you to pay off your car quicker and potentially pay less in interest over the life of a loan.

Lastly, understand that car prices are negotiable. Work for the best deal for you and understand that you don't have to swing at every offer thrown your way. Remember, you're doing the dealership a favor by spending your money there, not the other way around.

Penny stocks
According to a report from the North American Securities Administrators Association issued in September 1989, a least 70% of investors lose money in penny stocks. What's terrifying is that this figure came well before the advent of the Internet when access to information was considerably tougher. I would conjecture that this figure is probably much higher now, with the Internet allowing consumers to trade all stocks with the click of a button.

Www
Source: David Goehring, Flickr.

The obvious allure of penny stocks is their extremely low price point (under $1 per share). Investors wrongly assume that price determines value when failing to account for how many shares a company has outstanding. Essentially, investors are assuming it's considerably easier to move a stock from $0.20 to $0.40 than from $50 to $100, and thus see value in purchasing penny stocks.

Yet penny stocks have a number of hidden risks that investors often fail to account for.

The primary concern is that access to information can be scarce. Most penny stocks trade on the over-the-counter exchanges or Pink Sheets because they don't meet the market-cap requirements to be listed on a major exchange. The Pink Sheets, for example, don't require businesses to report their quarterly or annual results on a regular basis. Essentially you're flying blind as an investors with no tangible business data to base your opinion on.

Also, it's not uncommon to see penny stocks being promoted by another company. In fact, as long as both parties disclose that one company is being paid to promote the other, it's perfectly legal.

Finally, a lack of company history, experience, or liquidity can be a major concern. Penny stocks can be notorious for changing business models to latch onto a hot new trend. In addition, low or nonexistent penny-stock volume can make exiting a trade at a favorable price practically impossible.

Do yourself a favor and stay far away from penny stocks.

Here's a potentially smart money move you can make right now
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers