According to data from the Federal Trade Commission (FTC), Americans lost $10 billion to fraud in 2023, including over $4.6 billion in losses to investment scams. As you look for ways to invest your money, you’ll likely want to seek out the best possible returns with the least risk. However, there are many popular investments that may not give you the returns that you’re expecting.
What are five common investments that probably won’t make you a lot of money?
1. Certificate of Deposit (CD)
“CDs are debt instruments issued by a financial institution in exchange for a deposit made by an investor,” said Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University. “Interest rates on CDs are tied to the rate on United States Treasury investments of comparable maturity range.”
With stock market fluctuations over the last few years, many investors have looked into safer alternatives for their money. Investing in a CD provides you with consistent returns that are pretty much risk-free. While investing in a CD will help you sleep better at night, the harsh reality is that you probably won’t make a ton of money with this asset.
Why this may not be a good investment…
“The rate of return on CDs is lower than rates typically available on higher-risk alternatives,” stated Johnson. “CDs typically pay a rate of interest below that paid on long-term government bonds.”
The interest rates offered on CDs are guaranteed, but this also means that they aren’t as high as what you could earn by investing in the stock market. With the S&P 500 providing an average annual return of 24% in 2023, reporting Business Insider, and with CD rates hovering around 5%, it’s evident that you could make more money if you’re willing to take on some risk.
Johnson added, “CDs are more wealth protection instruments than wealth building instruments.”
2. Money Market Funds
“A money market is a mutual fund that invests in short-term debt instruments,” commented Johnson. “The term ‘money market’ is applied to high quality, short-term debt instruments that mature within one year.”
Money market funds are designed to offer high liquidity and low levels of risk, which means that they may not provide the highest interest rates out there.
Why this may not be a good investment…
Johnson pointed out that money market funds aren’t intended to build wealth. These funds are an investment vehicle for those who want high levels of liquidity and have a significant amount of cash ready to invest for a short period of time. However, the returns you’ll find on these aren’t high enough to earn you a decent return for your money.
3. Purchasing a Home For Airbnb
When Airbnb exploded in popularity many years ago, real estate investors rushed to get on the platform. Some investors purchased homes to list them on short-term marketplaces to maximize profits solely. While there was money to be made, and there still is, this isn’t the best investment since you have to spend a lot of money upfront on purchasing the property. Then, you have to worry about paying your typical housing expenses (mortgage payments, property taxes, insurance, and so on).
Why this may not be a good investment…
The biggest issue with investing in short-term rentals is that many factors are out of your control when it comes to making money. For example, the recent Airbnb regulations in New York City led to around 20,000 short-term rentals being removed from the platform. You also have to consider local legislation, as your community could ban short-term rentals, and then you would be stuck scrambling trying to find a tenant for this home.
4. Cryptocurrency Assets
Digital asset investments became fairly popular during the pandemic when stories emerged about regular people making ridiculous profits on meme coins. It wasn’t rare to hear people talking about investing in crypto and sharing anecdotes about how they knew someone who was making money in this space. However, the FTX collapse proved that this space wasn’t regulated enough and that the lucrative returns were temporary.
Why this may not be a good investment…
Most people don’t have the risk tolerance required to invest in cryptocurrency, as the fluctuations can be extreme. Also, due to the lack of regulations, it’s also possible that you could get caught up in some sort of scam. Based on the FBI’s Internet Crime Report for 2023, Americans lost $3.9 billion to crypto-related scams in 2023, an increase of 53% from the previous year. While promises of lucrative returns can be enticing, investing in crypto likely won’t make you any money.
5. US Government Securities (US Treasury Bills, Notes and Bonds)
“When an individual desires a high-quality investment that has little risk of default, US Government securities fit that bill,” shared Johnson.
It’s common for those looking for a safe investment to put their funds into a T-Bill for stable returns. However, the amount you can earn in interest isn’t that substantial, and you won’t make much money.
Why this may not be a good investment…
The biggest issue is that these investments don’t provide a rate of return that is generally higher than other fixed-income securities. You could find a better investment option if you search around or work with a financial advisor.
Johnson concluded:
“You’ll sleep well if you commit funds to low-risk investments like money market funds or Treasury Bills, but your investments will not grow substantially and may even have trouble keeping pace with inflation.”
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