I’m a Financial Expert: The 7 Biggest Investments People Waste Their Money On
Written by
Martin Dasko
Edited by
Joe Evans
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According to Federal Trade Commission (FTC) data, investment scams led to reported losses of $4.6 billion in 2023. This was higher than any other category, as digital tools make it easier to target people for fraudsters scamming money.
With promises of easy and lucrative returns on social media, one can fall victim to an investment scam without even realizing it. While it makes sense that someone would want to maximize the return on their investment, you must know how to spot perceived investments that can be a waste of money.
What are the biggest investments that people waste money on?
1. Whole Life Insurance
“These insurance policies often combine insurance with investment components, but typically the returns on offer are relatively low compared to a lot of other investment vehicles,” said Erika Kullberg, an attorney, personal finance expert and founder of Erika.com. “Factor in high premiums and fees, which can erode any potential gains, and you’re much better off looking elsewhere.”
The general sentiment is that whole life insurance is expensive and takes a decent amount of time to see any returns. Whole life insurance policies don’t make sense from an investment perspective unless you want lifelong coverage.
2. Expensive Collectors’ Items
You may have heard of a comic book or a rare rookie card of an athlete that sold for an astronomical amount, but the reality is that these items aren’t the best investment if you’re trying to make some money.
“Generally speaking, collectibles like rare coins, stamps, art and others can be unpredictable, speculative in value and also difficult to liquidate on short notice,” Kullberg noted.
It’s worth pointing out that memorabilia and collector’s items will make headlines when a pair of sneakers or a used glove gets sold for millions, but that doesn’t mean every item is worth a fortune.
“Most people into collecting expensive items like this primarily do it because they love the product, not because it’s making them lots of money. Prices can also fluctuate and in many cases, specialized knowledge is needed in order to avoid over or underselling.”
These items are an amazing investment when you discover that an old album cover or a card collecting dust in your basement is worth tons, but trying to flip something could be expensive.
3. Penny Stocks
“Low-priced stocks seem like a great idea because you invest very little and potentially earn a large amount of profit,” said Scott Lieberman, founder of Touchdown Money. “But more likely, these stocks are low-priced for a reason: the company isn’t worth much and is more likely to go to zero.”
Penny stocks are known for being very risky and you could easily get caught up in some sort of investment scheme. Fraudsters will use high-pressure sales tactics to convince you to invest your money in these, and you could easily lose your savings.
4. High Fee Mutual Funds
“Although these are not outright ‘bad’ investments, mutual funds that come with high fees can produce limited returns,” Kullberg commented. “Many mutual funds out there today are underperforming low-fee mutual funds and ETFs, which means you’re not likely to get the most out of your money.”
When you spend a decent amount of money on investment fees, you want to ensure the desired results. This is why you must track the performance of your investments so that you’re getting your money’s worth.
5. Hot Tips From Friends
“We’ve all had a friend or neighbor who has a hot tip that’s helped them make money in the market,” noted Lieberman. “Unless your friend happens to be employed as a broker — and if they are, why weren’t you already using them if they were good? — chasing their gains usually means catching the stock after the peak.”
While you may want to get some general personal finance advice from your friends, you should be cautious about investing tips from someone who doesn’t have a proven track record.
6. Savings Accounts
Traditional savings accounts just don’t make much interest and your money won’t keep up with inflation sitting around in one of these. If you have a significant amount of money saved, you want your funds to work for you.
Lieberman added, “You won’t lose money, at least, but you won’t gain much. If your account has $1,000 in it, the interest rates at some banks are so low that you’d make a dime in a year.”
7. Cryptocurrency Scams
You can’t compile a list of investments that are a waste of money without mentioning cryptocurrency. The FTC just issued a warning about cryptocurrency romance scams that are on the rise. The release outlined how you should watch out for people contacting you randomly on social media under the guise of a romantic interest trying to teach you about investing in cryptocurrency.
It has been reported that losses from crypto-related investment scams reached $3.94 billion in 2023, a 53% increase from the previous year. You should be extremely careful about spending your funds on any digital token that seems too good to be true.
Closing Thoughts
Lieberman concluded, “Everyone’s looking for the next big investment opportunity, and some of them sound pretty good. However, many of them have nothing more than wasting your money.”
You should be skeptical of anyone or any asset promising a lucrative guaranteed investment return since this doesn’t exist. If it were easy to get high returns, there would be more getting rich.
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