Some people often use Albert Einstein’s quote that “anybody who has never made a mistake has never tried anything new.”
However, as a smart investor, you should know that investment mistakes can cost you a lot financially, given that it’s not only your money at risk but your livelihood as well.
In order to mitigate the risks associated with investing, we want to help you make smarter decisions for yourself because, even though you might have the necessary general knowledge about investing, you might be lacking in practical knowledge. That’s why we created the IXFI Smartvestments series. Because we want to bring you the best financial advice from our experts, to make up in expertise for what you lack in practice.
So, let’s begin by exploring some bad moves to look out for in order to avoid making the wrong investments.
Savings Accounts
Chances are, the first place you think is the safest place to keep your money will be in a savings account. While the idea may be appealing, it may end up being the biggest financial mistake you ever make.
How can savings accounts be the wrong investment?
- Opportunity cost: Most banks pay an average APY of 0.06%, meaning that the savings account generates incredibly low returns. However, investing the funds in the stock markets can attract an average of 10% in annual gains or 5–6% average gains in less risky bonds. Thus, you are missing out on opportunities to make more money by using a savings account.
- Inflation risk: If the inflation rate is higher than the interest your money is earning, then you are losing money. Typically, commodities prices increase, thus reducing your savings’ buying power/value. For example, if you have $100 savings earning 0.06% interest, you will have $100.06 in your account at the end of the year. However, if the interest rate during the same period were 2%, you would require $102 to have the same purchasing power you had at the beginning of the investment.
Alternative Investments
These include financial assets that are not classified as conventional investments, including hedge funds, derivatives contracts, private equity or venture capital, and antiques and art. Although they are trendy, these investments can be wrong for an average investor for various reasons, including;
- the volatility of the return on alternative investments
- the complexity of the business models
- lack of transparency since buyers often have limited knowledge of the products
Real Estate Investment Trusts (REITs)
The high losses in the stock markets have always prompted investors to opt for tangible physical investments, such as real estate. While REITs enable investors to buy real estate, manage properties, and cover associated costs, they can be wrong investments for various reasons, including;
- Risks associated with high reliance on rental income such as defaulters or lack of tenants
- REITs are subject to liquidity issues since once the money is used to acquire property, it may take some time to unlock
- Taxes and interest rate risks
Even though the investments mentioned above are not guaranteed to be a fail, the many factors influencing their outcomes make them a thing of the past. That is why your energy should be geared more towards the smartvestments of the future.
Cryptocurrency
In the last few years, cryptocurrencies have become a popular medium of exchange, with Bitcoin as the leading digital currency. These financial assets can generate significant financial gains within a short period. For example, at the beginning of 2020, Bitcoin was trading at a price below $10,000 a coin, and the price had increased to $30,000 at the beginning of 2021.
However, the value of cryptocurrencies fluctuates a lot since the traders determine its price and are not backed by the Federal Deposit Insurance Corporation (FDIC) or any other money-generating institution. Liquidity is the primary benefit of Cryptocurrency. You can buy and sell them at any time.
What You Should Consider When Investing in Cryptocurrency
- Risk tolerance since digital currencies are high-risk investments
- Your financial knowledge to ensure you have the information needed to take advantage of the market
- The amount of money you can invest. Cryptocurrencies are higher-risk, higher-return investments. However, it is essential to note that these digital currencies are highly volatile, and price fluctuations may adversely affect your financial gains.
S&P 500 index funds
The S&P 500 index fund represents the funds invested in about 500 of the most prominent American companies that make up the large-cap stocks of roughly 80% of the US equity market, such as Amazon and Berkshire Hathaway Inc. Since the funds go to the most successful companies in almost all industries, the investment is more resilient, and the gains can be relatively high, up to 10%.
If you are a stock investor looking for diversified investment, the S&P 500 index fund is a good choice. Besides, it is a less risky way to invest in the stock market since the companies involved are the market’s highest performing. They are also highly liquid since the market is open, allowing investors to buy or sell any day.
Nasdaq-100 index funds
Given the rapid growth in technology companies, you have probably thought about investing in tech companies. The Nasdaq-100 index funds allow you to achieve that financial goal without having to spend time analyzing each tech company. Nasdaq index funds will enable you to invest in the best-performing companies making them low-risk. Besides, they allow immediate diversification, are highly liquid, and charge a very low expense ratio.
You can make multiple investments to avoid making wrong financial decisions. Inexperience and lack of financial knowledge can lead to poor decisions and financial loss. Do not miss on excellent investment opportunities or make bad investments. We at IXFI provide a platform where you can invest and gain knowledge on smart investment moves that guarantee significant returns.
These investments might a bit more suited for the modern era we live in and you have a lot more control over them. Of course, that means you need to know more about how everything works because the outcome is heavily dependent on your own knowledge and skills. That might sound scary, but don’t worry, we have got you covered in that department.
So, start Smartvesting with IXFI today to achieve all of your financial goals and your independence.
Disclaimer: The content of this article is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial and fiscal circumstances.
Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.
Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.
