To quote Merriam-Webster, the definition of investing is “to commit money in order to earn a financial return”.
To quote it again, the definition of speculating is “to form a theory or conjecture about a subject without firm evidence”.
While a lot of us feel confident in our investing skills, a lot of people’s actions don’t always fall into investing, but rather speculating. In the world of money, it’s actually not that surprising to see people speculating more than investing. But why is that? Why do we think we’re investing in something when we’re actually speculating?
Any skilled investor will know that the best kind of investments you want to look out for are transparent, reasonably liquid (i.e. you can easily turn the item into cash), have intrinsic value to it, and it has a track record.
But even when you’re looking at that criteria, it’s not all that clear what is a good investment or not. Some “hot” investments can look great on the surface, but looking deeper, they’re all gambles. On top of that, you’ve also got some investments turning out to be more like bets if you haven’t done enough research.
Without a doubt though, the investment ideas we share below will not do you good in the long term and here is why.
THINGS YOU DON’T UNDERSTAND: WHAT TRAPS PEOPLE
One of the key elements to an investing decision is being aware of what each investment’s role is in your portfolio. Each investment is like a performer and there should never be a performer doing absolutely nothing.
All in all, these investments should help you achieve the goals that you want. For example, if you want to buy a house in, say, 10 years, you’ll want to look for investments that have a high growth potential.
You also want to be aware of the risks and how they stack up to your tolerances. You can gauge this by asking how you’d react if you noticed a dip in price versus a 30 percent drop in what you owned. Some would be cool with the small fluctuations in price, but others would be in utter shock, and probably would lose sleep if they lost 30 percent.
In the end, risk tolerance is your own personal feeling towards risk, but a good rule to follow is this: if you’re worried about losing money from this investment or you don’t understand it, then it’s probably a bad investment for you.
THE DANGERS OF THINGS YOU DON’T UNDERSTAND
There is a saying in the investing world, that is – a great rule to follow: look at the downside of every investment before you invest.
To expand on that, you want to be investing only in things, where the downside risks to the investment are quantifiable.
In other words, if you have no clue what a broker, banker, financial advisor, or anyone else is telling you about any sort of investment, then avoid it. This goes for everything about the investment. The risks and returns, what the downsides actually are, or even the sides at all. Everything.
ARTWORK: WHAT TRAPS PEOPLE
Artwork today has turned from mere art to a now thriving industry, and through this industry, there are many who are looking to leverage art in their own way. From the artists themselves making the art, all the way to the investing side of things.
This industry has attracted tons of people and it makes sense. Artwork today – especially pieces from Banksy and Damien Hirst – can sell for millions of dollars at art fairs in various cities year after year. And while the pieces are impressive and are deserving of the value, you run into a lot of issues when you turn to the investing side.
As we have mentioned above, there are many people looking to profit off of art. You’ve got consultants and advisors who will manage your art investments for a fee and work for you much like a stock broker would. But the issue with the industry is that price points for art aren’t always as precise like a stock. As Artnet explained once “the work of just 25 artists generated almost as much money at auction as the work of thousands of other artists combined”.
So not only are you entering into a competitive market, but you may be paying top dollar for a piece that is worth a quarter of what you paid for.