The Good, The Bad, and The Ugly (Part 1)

Our Financial Planning Firm will shortly celebrate 33 years advising clients about what to do and importantly, what not to do with their hard earned money.

A Client recently asked me for the top 5 best and worst investments and strategies I have seen with over the last 3 decades.

The following is a quick look at the top 5 worst;

  1. “Investing” in bank accounts or similar for long terms. Cash is a very poor long term “investment”. After tax and inflation, there are basically nil returns. Cash is for short term use only.
  2. Over borrowing to invest in passive investments such as shares or property. Borrowing to the extent that you have to use a large portion of your salary plus the rental or dividends from a passive long term investment hurts when other opportunities arise and you can’t take advantage of them. It hurts badly when the value of those passive investments fall in a market crash and you are forced to sell at a loss to repay loans.
  3. Investing just because there is a tax deduction to do so. There have been many “schemes” (agricultural/films/ etc.) where the main purpose was great tax treatment. However, the underlying “investment” was a dud. Invest only in great investments. The tax treatment is a bonus.
  4. Buying to the trend. That is, investing when others have already made money in a rising market. Many investors commence investing when there is lots of good news around. Usually it’s too late.
  5. Commodities (gold etc.) – commodities traders make money, however most average investors do not. Many people invest in gold because of fear of upcoming economic times. Long term returns are just not there compared to shares and property.

Next time, a quick look at the best 5 strategies.