How to Make a Side Income Running a Vending Machine Business

As we continue to make our way through COVID-19, many people are still looking for ways to get items they need without physical contact with another person.

Vending machines serve that purpose — and make money for the machine’s owner.

Owning and operating vending machines is big business, providing passive income without any specialized skills. It’s also called automatic merchandising.

Basically, all you need to get started is some startup money to buy a machine, a good location and the right products.

The Vending Machine Business During COVID-19

Revenue for the vending machine industry was $24.2 billion in 2019, up 3% from the year before.

That data came from the Automatic Merchandiser’s Annual State of the Industry Survey — before the full impact of COVID-19 hit.

There were 2,175,756 vending machines in service in 2019 in a variety of locations including:

  • Manufacturing areas
  • Offices
  • Retail spaces
  • Hotels/motels
  • Schools
  • Hospitals and nursing homes
  • Universities/colleges
  • Correctional facilities
  • Military bases
  • Restaurants, bars and clubs

Cold beverages were the top-selling product category. A majority of vending machines involve food and beverage products including sodas, coffee, snacks and candy.

There are also machines for bulk vending like gumballs, stickers, toys, novelties and more. During COVID-19, machines popped up selling masks and hand sanitizer.

At places like airports, vending machines often sell tech accessories and travel essentials like neck pillows, blankets and eye masks. Laundry rooms in residential buildings often have machines with detergent and fabric softener.

With many offices, businesses and other public spaces closed or restricted due to the coronavirus pandemic, the vending industry is certainly taking a hit.

“We’re in a tough, tough industry right now with COVID-19. A lot of stores don’t want the machines there, they don’t want the kids congregating, they don’t want people touching them,” said Scott Ausmus, director of manufacturing for National Entertainment Network, Inc. and president of the National Bulk Vendors Association.

He grew up in the vending business. The machines he sells and operates are the novelty kind, offering things like stuffed animals, toys and gumballs. Many are in restaurants and entertainment venues like bowling centers.

Many factors make owning a vending machine an attractive business venture.

The startup costs are relatively low, sometimes around $2,000. The work is flexible and often doesn’t require much day-to-day involvement. The risk is comparatively low and there is growth potential.

“There’s a higher profit in the gumball then there is anything else,” Ausmus said. “The cost of goods is low on the gumballs and everybody likes gum, so everybody still purchases a gumball and so that is a winner for a lot of people.”

Starting a Vending Machine Business

While the startup costs are low and the income is often passive, owning vending machines is not without risk. You must be able to understand your own financial situation and how much you can afford to invest.

There is the cost of the machine, the cost of inventory, personnel to keep it stocked, maintenance and more.

The more perishable the product and the busier the area, the more of your time the machine will take.

“If (your machine location has) a big break room and a lot of employees, you would have to be there once a day to fill your machines up because that’s how busy they are,” Ausmus said. Other machines like toys and candy don’t require as much restocking.

One of the first steps in starting a vending machine business is finding your niche and deciding what to sell. That takes a bit of research and knowing who your customer is.

“You gotta buy the right product. If you buy the wrong product, it won’t move and you won’t make any money and you certainly don’t want to throw [product] away,” Ausmus said. “You’ve got to have the variety for people and find out which ones they want and that’s what you restock with, what sells.”

Vending machine businesses are scalable, meaning it’s possible to start small and expand. You don’t have to wait for payments because customers pay when they purchase an item.

Location, Location, Location

To put yourself in the best position to be profitable means finding the right location.

Places with lots of foot traffic are good. Before COVID-19, that meant schools and universities, malls, office parks, etc.

Think about where people need to wait. While waiting, they may get hungry or thirsty. Ausmus’ novelty machines need kids around.

“One of the hardest things to do is to locate a location,” he said.

Location can be about trial and error.

“It’s really not a bad risk to put it in a location and find out that it’s not making enough money. … You can remove it and move it to the next one until you find that right location,” Ausmus said.

When looking for locations, be prepared to approach the owner or landlord with a business plan for the machine.

Also be prepared to:

  • Pay a percentage of sales or other fee for having your machine in their location.
  • Pay for the electricity the machine uses.
  • Ensure the security of the machine. There is money inside a machine as well as inventory. Theft and vandalism are always possible.
  • Research state and local laws and regulations.
  • Pay sales tax on the revenue the machine generates.

Key Purchase: Your Vending Machine

Then you will need an actual vending machine. There are several types, and prices vary depending on what is in the machine, whether it needs refrigeration or heating, and the interactivity.

Buying directly from a manufacturer or supplier is one option, as is purchasing on a secondary market. Some companies also rent machines. Ausmus cautioned to make sure there are spare parts and support available for what you buy.

Machines range from about $1,500 for a used or refurbished machine to several thousands for a new, high-end machine with many technical features.

Some machines have:

  • Remote monitoring software: This helps keep track of how the machine is working and notifies the operator if something is wrong.
  • Low stock alerts: Notify the operator when items needs replacing.
  • Vending management systems (VMS): Tracks sales and other data to help owners make better business decisions.
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Running a Vending Machine Business

While owning vending machines does not require any special skills, it is a business.

You will need inventory and someone to keep the machine stocked and maintained. This may require a van or truck.

Perishables need to be stocked more often than other items. Learning some basic maintenance skills could keep you from having to hire someone if there is a problem with the machine.

Different types of machines have different capabilities. Some take only cash while others will process credit or debit cards. Some models have touch screens or voice capabilities.

“Make sure that you have your phone number on the machine, and that the store location knows your phone number,” said Ausmus. “If somebody didn’t get what they wanted, make sure the store can give them a refund and you pay the refund back to that store. Then get out there as soon as you can to fix the machine so that you can continue to make money.”

Automatic merchandising isn’t for everyone, but owning and operating a vending machine can be a good business. Being able to retrieve the money you make and restock your machines easily is the key.

“Then you only work probably three days a month, basically on the whole gig,” said Ausmus. “Three four days a month can make somebody a good little extra income.”

Tiffani Sherman is a Florida-based freelance reporter with more than 25 years of experience writing about finance, health, travel and other topics.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Buy a Used Car, Step By Step

New cars are sleek, shiny, full of impressive tech and smell amazing — mmm, new car smell. But they also come with price tags that can take your breath away — and not in a good way.

According to Kelley Blue Book, the average price of a new car in November 2020 was more than $39,000. Yowser.

If you’re in the market for a set of wheels that’s more affordable, steer your sights over to the used car lot to save a little money. Or even a lot of money.

Why Buying a Used Car Is a Smart Money Move

If you’ve ever heard someone refer to a car as a depreciating asset, it’s true. The longer you have a car, the less it’s worth. The first year of owning a new vehicle is when depreciation really packs a punch.

Jim Sharifi, formerly a content editor at Carfax, said research shows a new vehicle can lose as much as 10% of its value within the first month.

“In the first year of ownership, depreciation can continue, and that same car could be worth up to 20% less than its original sale price,” he said.

When you buy a used car, the original owner has already taken that initial hit on depreciation and the price you pay accounts for that, so you don’t have to shell out as much cash.

Just because you’re buying a car at a lower price point doesn’t mean you’ll be stuck with a clunker that was manufactured decades ago. Cars that are just two or three years old often hit dealership lots when their previous owners reach the end of their lease.

Those vehicles often have low mileage and are in great condition, having had only one previous owner. Sometimes they even still retain a hint of that new car smell.

So that covers the why. Now let’s get into how to buy a used car.

The Best Time to Buy a Used Car

RobertCorse/Getty Images

Unlike new car releases, used cars come on the market throughout the year. It all depends on when their previous owners end their leases, put them up for sale or decide to trade in their vehicles.

However, there are certain times when you’re more likely to score a better deal.

Matt DeLorenzo, senior managing editor for Kelley Blue Book, said when dealerships host big sales events for new models that can also benefit used car shoppers.

“[Dealerships] will have more used vehicle inventory as a result of those types of promotions,” he said.

Think of the big sales that fall around holidays like Memorial Day, Fourth of July and Labor Day.

The end of a model year — around September or October — is another good time to shop, DeLorenzo noted, as salespeople are looking to make deals to clear out their used vehicle stock to make room for new inventory.

It’s best to avoid shopping for a car on the weekend when there’s an influx of customers and sales staff is spread thin, Sharifi said. You’ll get more attention from the sales team by visiting on off hours, specifically on weekdays.

“The end of the month (or the end of a quarter) can also be a good time to strike a deal, since dealerships may need to hit monthly or quarterly sales goals,” he said.

Of course, when you need a car might not align with a particular sale or time of month. Shopping for a vehicle before you’re in critical need of one will allow you time to search for the best deal rather than having to settle for something quick.

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Where to Shop for a Used Car — and Where to Avoid

Where you shop for a used car matters so you can avoid purchasing a lemon.

DeLorenzo recommends shopping at franchised car dealerships that have certified pre-owned cars — used vehicles that have been thoroughly inspected and typically come with some type of warranty coverage. Non-certified cars aren’t bad — and they’ll typically cost less — but they’re more likely to have higher mileage and more maintenance needs.

Be wary of independent car lots that boast they can make you a deal regardless of your credit or circumstance.

“Typically they’ll try to get you in with a low price, but you may not be getting the best quality car,” he said. “The other thing is that if you get your financing through those types of dealers, they typically charge you a much higher interest rate.”

Pro Tip

DeLorenzo recommends pre-qualifying for a loan at a bank or credit union before visiting a dealership. You can compare the offer with the dealer’s financing terms for better negotiating leverage.

For any dealer you visit, do some due diligence and check customer reviews online. If you know others who’ve recently purchased a car, ask for recommendations.

Outside of dealerships, look for cars online at trusted sites like Autotrader, Kelley Blue Book, Carfax or Edmunds — or buy from a private seller.

When you’re buying from a private party, you may be able to get more accurate information about how they’ve driven and maintained the vehicle and what particular issues it might have, said Ron Montoya, senior consumer advice editor at Edmunds.

However, you also need to be OK with buying the vehicle as-is and securing your own financing. And be sure the owner has clear title to the car — in other words, don’t let anyone sell you a car they don’t legitimately own.

If cost is your primary concern, a private seller is likely to offer a lower price. A dealer folds overhead, repairs and marketing into its price.

What to Look for When Buying a Used Car

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Knowing when and where to buy a used car is just half the battle. Figuring out how to vet a used car can be tough, especially if you have little to no car knowledge.

These tips will give you some guidance to make a good choice.

1. Find a Vehicle That Fits Your Needs

It’s easy to focus on the numbers — age of the car, mileage and cost — but you also want to make sure you’re buying a car that’ll fit your needs for however long you expect to have it. If you have a growing family, you might want to rethink that two-door coupe or compact vehicle.

“You want to make sure there’s enough room for you,” Montoya said. “Take a look at the cargo area. Take a look at how easy it is to see out of the vehicle. Test out the entertainment system.”

2. Determine How ‘Used’ You’re Willing to Go

The older a car is, the cheaper it’ll be — but the more it’s likely to have issues requiring repair. Everyone has a different comfort level when it comes to what they’re willing to handle. A general rule of thumb is that a car is driven about 12,000 miles per year. A higher average could mean the car has more wear and tear.

Montoya said used car buyers must strike a balance between the age of the car, the amount of miles and what price they’re willing to pay.

Buying an extended warranty or service plan can give you peace of mind that certain repairs or maintenance jobs will be covered.

Pro Tip

Montoya said plans sold by auto manufacturers or reputable dealerships are better options than those sold by third-party companies. Make sure you understand exactly what your plan covers.

3. Make Sure The Price is Right

Before you accept a sales price, research the value of the car to make sure you’re not overpaying. Carfax, Kelley Blue Book and Edmunds all have price appraisal tools online.

You can also compare similar vehicles on the market to get an estimate of a car’s value, but keep in mind, no two used vehicles will be the same due to how they were driven and maintained. Use all this information when you sit down to negotiate — and don’t be afraid to walk away if you don’t think you’re getting a fair price.

When you’re budgeting for a car purchase, make sure you’re factoring in all the associated costs, like sales tax, insurance and getting the car registered.

4. Check the History of the Car

Sometimes just looking at a car will give you some idea of its history. Rust, worn out pedals and a side panel painted in a different color are red flags.

But don’t just assume a car’s history. Getting the car’s history report, such as through Carfax, is a crucial step when buying a used car.

You’ll have to purchase the report if you’re buying from a private seller, so wait until you’re seriously interested in a particular vehicle. If you’re buying from a dealership, the salesperson should provide a copy of the vehicle history report for free.

Sharifi said to watch out for discrepancies with the odometer reading and if there’s a branded title, which indicates that the car has been significantly compromised in some way.

“Severe accidents and instances where a car has been declared a total loss should signal the buyer to use caution,” he said. “That said, a small fender bender shouldn’t always mean that a buyer should walk away from a great deal.”

5. Go for a Test Drive

Always, always, always take a car for a spin before buying it. If you can bring a mechanic with you, even better.

“Some general things you can do on your own without being super knowledgeable about cars is [to] turn off the radio [and] listen for any strange noises,” Montoya said. “See if the steering wheel stays straight when you drive down the road. Does it pull to one side? Look at the tires to see how old they are.”

Pro Tip

Don’t just look at the tires’ tread. Each tire should include a four-digit number marking the month and year it was manufactured. Tires older than six years can be dried out and need replacing.

For any used car purchase, but especially if you’re buying from a private seller, have your mechanic inspect the vehicle before committing to buy.

Knowing the ins and outs of how to buy a used car will make the whole process less stressful and, most importantly, save you money.

Nicole Dow is a senior writer at The Penny Hoarder. Former staff writer Carson Kohler contributed to this post.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

What is a credit card statement credit?

A recent trend in credit card rewards is increased flexibility in how you can redeem your cash back, points or miles. You can book travel, invest, get gift cards and more – but one of the most common ways a credit card company will issue rewards is as a statement credit.

Statement credits may seem simple, but they’re handled a little differently by each rewards program, and there’s a lot to consider when you’re trying to decide if they’re the best way to redeem cash back or other rewards.

See related: What is cash back?

What is a statement credit?

Put simply, a statement credit is money credited to your account. In its most basic form, a statement credit is not much different from a payment. Like a normal monthly payment, a statement credit is deducted from your card balance, reducing the amount of money you owe. But where cardholders are responsible for payments, credits come from either a merchant or card issuer.

rewards cards also allow you to redeem the points or miles you’ve earned as statement credits. While some cards allow you to use a statement credit to reduce your balance with no restrictions, others only apply credits to your account after you meet certain criteria or make purchases in specific spending categories.

Statement credits on cash back cards

Cash back cards usually make it easy to redeem your points as a statement credit. In most cases, all you need to do is meet the card’s minimum redemption criteria, then choose a statement credit as your redemption method. Once a credit is applied to your account, your card balance decreases accordingly.

If, for example, you were to spend $3,000 with a flat rate 1 percent cash back card, you’d earn a $30 credit; and if you were to redeem this entire credit, $30 would be deducted from your account balance.

While many cards give you the option to request your cash back in the form a check, some only allow you to redeem as a statement credit – so be sure to read your issuer’s terms carefully. After all, when you get your cash back as a check or direct deposit, the money is yours to spend or save as you’d like. With a statement credit, however, the funds are “trapped” in your account and only impact your card balance. If you stop using your card or close your account, you could lose any cash back or points you haven’t redeemed.

Capital One Venture Rewards Credit Card, for example, allows you to book travel through the rewards center at a rate of 1 cent per mile. But if you redeem your miles for cash back as a statement credit, their value is cut in half to just 0.5 cents per mile.

If you prefer to redeem your rewards as a statement credit, make sure doing so doesn’t dilute the value of your points or miles, as each rewards program grants and values statement credits a little differently.

Statement credits for an introductory bonus

Statement credits also frequently appear as part of a card introductory or annual bonus, when issuers offer to reward you if you spend a certain amount of money within a given timeframe. The Blue Cash Preferred® Card from American Express, for example, offers a $250 bonus after you spend $1,000 with your new card in the first 3 months. Instead of simply sending you a check for $250, however, American Express credits your account $250 after you’ve met the conditions of the offer. Once received, the credit will cover the next $250 you charge.

Statement credits for card benefits

Many cards also award extra perks in the form of a statement credit. The United Explorer Card and Chase Sapphire Reserve, for example, each offer up to a $100 credit to cover the cost of a Global Entry or TSA PreCheck application.

In these cases, a statement credit is applied to your account only after you make the eligible purchase and cannot be used for anything else.

How statement credits work with the major rewards programs

Here’s how some of the major rewards programs treat statement credits:

Rewards program Can you redeem rewards as a statement credit? Minimum redemption Rewards rate when redeemed as a credit
Discover cards Cashback Bonus Yes None 1:1
Bank of America Cash Rewards Yes None ($25 for automatic redemptions) 1:1
American Express Membership Rewards Yes $25 1:0.6
Chase Ultimate Rewards Yes $20 1:1

Should I redeem my points as a statement credit?

Once you know what a statement credit is and how it’s treated by your rewards program, you’ll probably wonder if it’s smart to redeem your points or miles in this form. While the answer will depend on your spending habits, goals and financial situation, it makes more sense in certain circumstances.

If you’re trying to decide whether you should redeem your points as a credit statement, consider the following:

  • Are you going to carry a balance? If you’re not sure whether you’ll be able to pay off your balance in full by the due date, redeeming your points as a statement credit makes sense. You’ll knock a chunk off your balance and make it easier to pay in full and avoid interest charges. Keep in mind, however, that statement credits are not usually considered payments, so if you can’t help carrying a balance, you’ll still have to make a minimum out-of-pocket payment.
  • Does your card offer an incentive for redeeming points as a statement credit? Some cash back cards offer redemption bonuses when you opt for a statement credit over “true” cash back in the form of a check or direct deposit. If that’s the case, and you plan to continue using the card, go with a statement credit to get more mileage out of your cash back rewards.
  • Are your points worth less when redeemed as a statement credit? If you’re using a card with a more flexible rewards program, redeeming your rewards as a statement credit is likely possible, but not necessarily wise. Check your issuer’s terms to see if your points lose any value when redeemed as a statement credit. If 1 point is worth 1 cent when used for travel purchases, but only 0.5 cents when redeemed as a statement credit, you’re missing out on a lot of the value you’ve earned. If you have no interest in travel, see if you can get full value out of your points in a roundabout way, like redeeming points for gift cards at stores you frequent.

Other ways to redeem your credit card rewards

Many cards offer several other options for redeeming your rewards. In addition to statement credits, you may be able to redeem cash back, points, or miles for:

  • A direct deposit – You can link your bank account so that when you hit “redeem,” that money goes directly to your account. For some, this is more satisfying than receiving a statement credit.
  • A check – If you don’t mind waiting, many credit card issuers will mail a check for the value of your rewards.
  • Gift cards – Some credit cards allow you to exchange your points or cash back for gift cards. Make sure that you’re getting the same or more value before you choose this option – sometimes the dollar value of gift cards is different from what you would get redeeming for a statement credit or direct deposit.
  • Merchandise – Credit card issuers sometimes have shopping portals that give you the option to use your cash back or points to pay for merchandise. This is another option that you should approach with caution. Do the math to make sure you’re getting the same dollar value as you would with a direct deposit or statement credit.
  • Travel – Travel redemption options vary from card to card, but there are two main methods, one of which is receiving a statement credit for travel purchases you’ve already made. The other is using the issuer’s portal to book travel, such as flights or hotels, online.

Final Thoughts

A statement credit is just one way you can receive bonuses and redeem the rewards you’ve earned. If you’re using a cash back card, it could be a smart, low-maintenance way to reduce your balance and build good spending habits. If you’re using a more flexible rewards or travel card, though, make sure redeeming as a statement credit still gets you fair value for your points or miles.

Source: creditcards.com

Did You Know that Amazon Has a Secret Luxury Site?

Amazon’s best-kept secret is out. VRSNL, (short for “versional”), has been quietly selling luxury fashion items since September 2019. A total of 30 designers are currently on the VRSNL roster, including Alexander McQueen, Balmain, Prada and Jimmy Choo. What distinguishes VRSNL is a section called “The Remix,” which features original editorial content that tells stories behind the brands and designers. The retailer also has an app, which allows today’s trendsetters to shop wherever, whenever.

The post Did You Know that Amazon Has a Secret Luxury Site? first appeared on Century 21®.

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Trophy Apartment Once Owned by Composer Leonard Bernstein Asks $29.5 Million

An Upper East Side apartment that was once home to one of the most significant American cultural personalities of the 20th century has recently hit the market.

The Art Deco masterpiece at 895 Park Avenue was previously owned by famed composer and cultural icon Leonard Bernstein, whom music critics refer to as “one of the most prodigiously talented and successful musicians in American history”. In fact, this very property is where Bernstein — also a lifelong humanitarian, civil rights advocate, and peace activist — hosted an infamous “radical chic” party with and in support of the Black Panther Party back in 1970.

But its famous past owner is not the building’s only historical trait; built in 1929, it is designed in the classic Art Deco style, evoking New York City’s golden age glamour and sophistication. That, paired with its carefully preserved original architectural details (original wood-burning fireplaces and wide-plank wood floors) and panoramic Manhattan views make this residence a true gem.

perfect manhattan views from luxury apartment
Image credit: Warburg Realty

Clocking in at approximately 6,300 square feet, with an extra 700 square feet of private outdoor space, the 895 Park Avenue unit spans over two floors of the 21-story Upper East Side building. The entrance is through a private elevator landing which opens into a 34-foot grand gallery, further leading into the residence’s elegant formal living room, library, and dining room.

With 6 bedrooms and 6.5 bathrooms, the trophy apartment also comes with an enclosed solarium that’s bathed in sunlight and that, just like the rest of the rooms and outdoor spaces, opens up to picture-perfect views of the city.

beautiful solarium in Manhattan apartment
Image credit: Warburg Realty
Image credit: Warburg Realty
Image credit: Warburg Realty

A grand staircase leads to the lower level, which houses the 6 bedrooms, as well as a home office and laundry room. All but one of the bedrooms enjoys their own en-suite bathroom as well as significant storage space in the form of walk-in closets or dressing rooms.

Image credit: Warburg Realty

The building itself adds an extra note of sophistication and convenience; the full-service white glove co-op has a long list of amenities, including multiple doormen, an elevator attendant, health club, squash court, basketball court, and private storage units. Though location itself may be its biggest asset: 895 Park Avenue is located right in the heart of the Upper East Side, on the southeast corner of 79th street and Park Avenue, providing direct access to world-class dining and shopping.

Priced at $29.5 million, the elegant unit is listed with Bonnie Chajet, Allison Chiaramonte, and Tania Isacoff Friedland of Warburg Realty.

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5 Best Hedges in the Face of Inflation

Inflation measures how much an economy rises over time, comparing the average price of a basket of goods from one point in time to another. Understanding inflation is an important element of investing.

The Bureau of Labor Statistics CPI Inflation Calculator shows that $5.00 in September 2000 has the purchasing power equal to $7.49 in September 2020. To continue to afford necessities, your income must pace or rise above the rate of inflation. If your income didn’t rise along with inflation, you couldn’t afford that same pizza in September 2020 — even if your income never changed.

Inflation represents a real risk for investors as it could erode the principal value of your investment.

For investors, inflation represents a real problem. If your investment isn’t growing faster than inflation you could technically end up losing money instead of growing your wealth. That’s why many investors look for stable and secure places to invest their wealth. Ideally, in investment vehicles that guarantee a return that’ll outpace inflation. 

These investments are commonly known as “inflation hedges”. 

5 Top Inflations Hedges to Know

Depending on your risk tolerance, you probably wouldn’t want to keep all of your wealth in inflation hedges. Although they might be secure, they also tend to earn minimal returns. You’ll unlikely get rich from these assets, but it’s also unlikely you’ll lose money. 

Many investors turn to these secure investments when they notice an inflationary environment is gaining momentum. Here’s what you should know about the most common inflation hedges.

1. Gold

Some say gold is over-hyped, because not only does it not pay interest or dividends, but it also does poorly when the economy is doing well. Central banks, who own most of the world’s gold, can also deflate its price by selling some of its stockpile. Gold’s popularity might be partially linked to the “gold standard”, which is the way countries used to value its currency. The U.S. hasn’t used the gold standard since 1933.

Still, gold’s stability in a crisis could be good for investors who need to diversify their assets or for someone who’s very risk-averse. 

If you want to buy physical gold, you can get gold bars or coins — but these can be risky to store and cumbersome to sell. It can also be hard to determine their value if they have a commemorative or artistic design or are gold-plated. Another option is to buy gold stocks or mutual funds. 

Is gold right for you? You’ll need to determine how much risk you’re willing to tolerate with your investments since gold offers a low risk but also a low reward. 

Pros

  • Physical asset: Gold is a physical asset in limited supply so it tends to hold its value. 
  • Low correlation: Creating a diversified portfolio means investing in asset classes that don’t move together. Gold has a relatively low correlation to many popular asset classes, helping you potentially hedge your risk.
  • Performs well in recessions: Since many investors see gold as a hedge against uncertainty, it is often in high demand during a recession.

Cons

  • No dividends: Gold doesn’t pay any dividends; the only way to make money on gold is to sell it. 
  • Speculative: Gold creates no value on its own. It’s not a business that builds products or employs workers, thereby growing the economy. Its price is merely driven by supply and demand.
  • Not good during low inflation: Since gold doesn’t have a huge upside, during periods of low inflation investors generally prefer taking larger risks and will thereby sell gold, driving down its price.

2. Real Estate Investment Trusts (REITs)

Buying real estate can be messy — it takes a long time, there are many extra fees, and at the end of the process, you have a property you need to manage. Buying REITs, however, is simple.

REITs provide a hedge for investors who need to diversify their portfolio and want to do so by getting into real estate. They’re listed on major stock exchanges and you can buy shares in them like you would any other stock.

If you’re considering a REIT as an inflation hedge you’ll want to start your investment process by researching which REITs you’re interested in. There are REITs in many industries such as health care, mortgage or retail. 

Choose an industry that you feel most comfortable with, then assess the specific REITs in that industry. Look at their balance sheets and review how much debt they have. Since REITs must give 90% of their income to shareholders they often use debt to finance their growth. A REIT that carries a lot of debt is a red flag.

Pros

  • No corporate tax: No matter how profitable they become, REITs pay zero corporate tax.
  • High dividends: REITs must disperse at least 90% of their taxable income to shareholders, most pay out 100%.
  • Diversified class: REITs give you a way to invest in real estate and diversify your assets if you’re primarily invested in equities.

Cons

  • Sensitive to interest rate: REITs can react strongly to interest rate increases.
  • Large tax consequences: The government treats REITs as ordinary income, so you won’t receive the reduced tax rate that the government uses to assess other dividends.
  • Based on property values: The value of your shares in a REIT will fall if property values decline.

3. Aggregate Bond Index

A bond is an investment security — basically an agreement that an investor will lend money for a specified time period. You earn a return when the entity to whom you loaned money pays you back, with interest. A bond index fund invests in a portfolio of bonds that hope to perform similarly to an identified index. Bonds are typically considered to be safe investments, but the bond market can be complicated.

If you’re just getting started with investing, or if you don’t have time to research the bond market, an aggregate bond index can be helpful because it has diversification built into its premise. 

Of course, with an aggregate bond index you run the risk that the value of your investment will decrease as interest rates increase. This is a common risk if you’re investing in bonds — as the interest rate rises, older issued bonds can’t compete with new bonds that earn a higher return for their investors. 

Be sure to weigh the credit risk to see how likely it is that the bond index will be downgraded. You can determine this by reviewing its credit rating. 

Pros

  • Diversification: You can invest in several bond types with varying durations, all within the same fund.
  • Good for passive investment: Bond index funds require less active management to maintain, simplifying the process of investing in bonds.
  • Consistency: Bond indexes pay a return that’s consistent with the market. You’re not going to win big, but you probably won’t lose big either.

Cons

  • Sensitive to interest rate fluctuations: Bond index funds invested in government securities (a common investment) are particularly sensitive to changes to the federal interest rate.
  • Low reward: Bond index funds are typically stable investments, but will likely generate smaller returns over time than a riskier investment.

4. 60/40 Portfolio

Financial advisors used to highly recommend a 60/40 stock-bond mix to create a diversified investment portfolio that hedged against inflation. However, in recent years that advice has come under scrutiny and many leading financial experts no longer recommend this approach. 

Instead, investors recommend even more diversification and what’s called an “environmentally balanced” portfolio which offers more consistency and does better in down markets. If you’re considering a 60/40 mix, do your research to compare how this performs against an environmentally balanced approach over time before making your final decision.

Pros

  • Simple rule of thumb: Learning how to diversify your portfolio can be hard, the 60/40 method simplifies the process.
  • Low risk: The bond portion of the diversified portfolio serves to mitigate the risk and hedge against inflation.
  • Low cost: You likely don’t have to pay an advisor to help you build a 60/40 portfolio, which can eliminate some of the cost associated with investing.

Cons

  • Not enough diversification: Financial managers are now suggesting even greater diversification with additional asset classes, beyond stocks and bonds.
  • Not a high enough return: New monetary policies and the growth of digital technology are just a few of the reasons why the 60/40 mix doesn’t perform in current times the same way it did during the peak of its popularity in the 1980s and 1990s.

5. Treasury inflation-protected securities (TIPS)

Since TIPS are indexed for inflation they’re one of the most reliable ways to guard yourself against high inflation. Also, every six months they pay interest, which could provide you with a small return. 

You can buy TIPS from the Treasury Direct system in maturities of five, 10 or 30 years. Keep in mind that there’s always the risk of deflation when it comes to TIPS. You’re always guaranteed a minimum of your original principal at maturity, but inflation could impact your interest earnings.

Pros

  • Low risk: Treasury bonds are backed by the federal government. 
  • Indexed for inflation: TIPS will automatically increase its principle to compensate for inflation. You’ll never receive less than your principal at maturity.
  • Interest payments keep pace with inflation: The interest rate is determined based on the inflation-adjusted principal. 

Cons

  • Low rate of return: The interest rate is typically very low, other secure investments that don’t adjust for inflation could be higher. 
  • Most desirable in times of high inflation: Since the rate of return for TIPS is so low, the only way to get a lot of value from this investment is to hold it during a time when inflation increases and you need protection. If inflation doesn’t increase, there could be a significant opportunity cost.

The Bottom Line 

Inflation represents a real risk for investors as it could erode the principal value of your investment. Make sure your investments are keeping pace with inflation, at a minimum. 

Inflation hedges can protect some of your assets from inflation. Although you don’t always have to put your money in inflation hedges, they can be helpful if you notice the market is heading into an inflationary period. 

The post 5 Best Hedges in the Face of Inflation appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Dear Penny: How Do I Save for Retirement on a Teacher’s Salary?

Dear Penny,

I’m 51 years old and don’t have a large nest egg. I’m a single parent with three kids. I’m a second career middle school teacher, so there is not a lot of money left over each month. 

How much money should I be saving to be able to retire in my 70s? Where should I invest that money?

-B.

Dear B.,

You still have 20 years to build your nest egg if all goes as planned. Sure, you’ve missed out on the extra years of compounding you’d have gotten had you accumulated substantial savings in your 20s and 30s. But that’s not uncommon. I’ve gotten plenty of letters from people in their 50s or 60s with nothing saved who are asking how they can retire next year.

I like that you’re already planning to work longer to make up for a late start. But here’s my nagging concern: What if you can’t work into your 70s?

The unfortunate reality is that a lot of workers are forced to retire early for a host of reasons. They lose their jobs, or they have to stop for health reasons or to care for a family member. So it’s essential to have a Plan B should you need to leave the workforce earlier than you’d hoped.

Retirement planning naturally comes with a ton of uncertainty. But since I don’t know what you earn, whether you have debt or how much you have saved, I’m going to have to respond to your question about how much to save with the vague and unsatisfying answer of: “As much as you can.”

Perhaps I can be more helpful if we work backward here. Instead of talking about how much you need to save, let’s talk about how much you need to retire. You can set savings goals from there.

The standard advice is that you need to replace about 70% to 80% of your pre-retirement income. Of course, if you can retire without a mortgage or any other debt, you could err on the lower side — perhaps even less.

For the average worker, Social Security benefits will replace about 40% of income. If you’re able to work for another two decades and get your maximum benefit at age 70, you can probably count on your benefit replacing substantially more. Your benefit will be up to 76% higher if you can delay until you’re 70 instead of claiming as early as possible at 62. That can make an enormous difference when you’re lacking in savings.

But since a Plan B is essential here, let’s only assume that your Social Security benefits will provide 40%. So you need at least enough savings to cover 30%.

If you have a retirement plan through your job with an employer match, getting that full contribution is your No. 1 goal. Once you’ve done that, try to max out your Roth IRA contribution. Since you’re over 50, you can contribute $7,000 in 2021, but for people younger than 50, the limit is $6,000.

If you maxed out your contributions under the current limits by investing $583 a month and earn 7% returns, you’d have $185,000 after 15 years. Do that for 20 years and you’d have a little more than $300,000. The benefit to saving in a Roth IRA is that the money will be tax-free when you retire.

The traditional rule of thumb is that you want to limit your retirement withdrawals to 4% each year to avoid outliving your savings. But that rule assumes you’ll be retired for 30 years. Of course, the longer you work and avoid tapping into your savings, the more you can withdraw later on.

Choosing what to invest in doesn’t need to be complicated. If you open an IRA through a major brokerage, they can use algorithms to automatically invest your money based on your age and when you want to retire.

By now you’re probably asking: How am I supposed to do all that as a single mom with a teacher’s salary? It pains me to say this, but yours may be a situation where even the most extreme budgeting isn’t enough to make your paycheck stretch as far as it needs to go. You may need to look at ways to earn additional income. Could you use the summertime or at least one weekend day each week to make extra money? Some teachers earn extra money by doing online tutoring or teaching English as a second language virtually, for example.

I hate even suggesting that. Anyone who teaches middle school truly deserves their time off. But unfortunately, I can’t change the fact that we underpay teachers. I want a solution for you that doesn’t involve working forever. That may mean you have to work more now.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Change the Executor of a Will

A last will and testamentDrafting a last will and testament can help to ensure that your assets are distributed according to your wishes after you pass away. You can also use your will to name a legal guardian for minor children or choose an executor for your estate. It’s possible to make changes to your will after it’s written, including removing or adding an executor if necessary. If you’re wondering how to change the executor of a will after the fact, the process is easier than you might think. As you go about the process, it may behoove you to find a trusted financial advisor in your area for hands-on guidance.

Executor of a Will, Explained

The executor of a will is the person responsible for carrying out the terms of a will. When you name someone as executor, you’re giving him or her authority to handle certain tasks related to the distribution of your estate.

Generally, an executor can be any person you name. For example, that might include siblings, your spouse, adult children or your estate planning attorney. Minor children can’t serve as executors and some states prohibit convicted felons from doing so as well.

There’s no rule preventing a beneficiary of a will from also serving as executor. While beneficiaries can’t witness a will in which they have a direct interest, they can be charged with executing the terms of the will once you pass away.

What Does the Executor of a Will Do?

Being executor to a will means there are certain duties you’re obligated to carry out. Those include:

  • Obtaining death certificates after the will-maker passes away
  • Initiating the probate process
  • Creating an inventory of the will-maker’s assets
  • Notifying the will-maker’s creditors of the death
  • Paying off any outstanding debts owed by the will-maker
  • Closing bank accounts if necessary
  • Reading the will to the deceased person’s heirs
  • Distributing assets to the persons named in the will

Executors can’t change the terms of the will; they can only see that its terms are carried out. An executor can collect a fee for their services, which is typically a percentage of the value of the estate they’re finalizing.

Reasons to Change the Executor of a Will

While you may draft a will assuming that your choice of executor won’t change, there are different reasons why making a switch may be necessary. For example, you may need to choose a new executor if:

  • Your original executor passes away or becomes seriously ill and can’t fulfill his or her duties
  • You named your spouse as executor but you’ve since gotten a divorce
  • The person you originally named decides he or she no longer wants the responsibility
  • You’ve had a personal falling out with your executor
  • You believe that a different person is better equipped to execute your will

You don’t need to provide a specific reason to change the executor of a will. Once you’re ready to do so there are two options to choose from: add a codicil to an existing will or draft a brand-new will.

Using a Codicil 
to Change the Executor of a Will

Woman changes her will

A codicil is a written amendment that you can use to change the terms of your will without having to write a new one. Codicils can be used to change the executor of a will or revise any other terms as needed. If you want to change your will’s executor using a codicil, the first step is choosing a new executor. Remember, this can be almost anyone who’s an adult of sound mind, excluding felons.

Next, you’d write the codicil. In it, you’d specify the changes you’re making to your will (i.e. naming a new executor), the name of the person who should serve as executor going forward and the date the change should take effect. You’d also need to validate the codicil the same way you did your original will.

This means signing and dating the codicil in the presence of at least two witnesses. Witnesses must be legal adults of sound mind and they can’t have an interest in the will. So, a beneficiary to the will couldn’t witness your codicil but a neighbor or coworker could if they don’t stand to benefit from the will directly or indirectly.

Once the codicil is completed and signed by yourself and the witnesses, you can attach it to your existing will. It’s helpful to keep a copy of your will and the codicil in a safe place, such as a safe deposit box. You may also want to give a copy to your estate planning attorney if you have one.

Writing a New Will to 
Change the Executor of a Will

If you need to change more than just the executor of your will, you might consider drafting a new will document. The process for drafting a new will is similar to the one you followed for making your original one.

You’d need to specify who your beneficiaries will be, how you want your assets to be distributed and who should serve as executor. The new will would also need to be signed and properly witnessed.

But you’d have to take the added step of destroying all copies of the original will. This is necessary to avoid confusion and potential challenges to the terms of the will after you pass away. If you’re not sure how to draft a new will to replace an existing one, you may want to talk to an estate planning attorney to make sure you’re doing so legally.

What Happens If You Don’t Name an Executor?

Probate court hearing form

If, for any reason, you choose not to name an executor in your will the probate court can assign one. After you pass away, eligible persons can apply to become the executor of your estate. The person the court chooses would then be able to carry out the terms of your will. If you don’t have a will at all, then your assets would be distributed according to your state’s inheritance laws.

That’s why it’s important to take the time to at least write a simple will. This way, there’s no question of your estate being divided among your heirs the way that you want it to be.

The Bottom Line

Making a will can be a good starting point for shaping your estate plan. Naming an executor means you don’t have to rely on the probate court to do it. But if you need to change the executor of your will later, it’s possible to do so with minimal headaches.

Tips for Estate Planning

  • Consider talking to a financial advisor about creating an estate plan and what you might need. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with an advisor in your local area. It takes just a few minutes to get your personalized recommendations online. If you’re ready, get started now.
  • A will is just one document you may need as part of your estate plan. You may also consider setting up a trust, for example, if you have extensive assets or own a business. Life insurance is something you may also need to have, along with an advance health care directive and/or power of attorney.

Photo credit: ©iStock.com/eric1513, ©iStock.com/kate_sept2004, ©iStock.com/courtneyk

The post How to Change the Executor of a Will appeared first on SmartAsset Blog.

Source: smartasset.com

10 Risky Investments That Could Make You Lose Everything

If the stock market crashed again, would you respond by investing more? Is day trading your sport of choice? Do you smirk at the idea of keeping money in a savings account instead of investing it?

If you answered yes to these questions, you’re probably an investor with a high risk tolerance.

Hold up, Evel Knievel.

It’s fine to embrace a “no-risk, no-reward” philosophy. But some investments are so high-risk that they aren’t worth the rewards.

10 Risky Investments That Could Lead to Huge Losses

We’re not saying no one should ever consider investing in any of the following. But even if you’re a personal finance daredevil, these investments should give you serious pause.

Sure, if things go well, you’d make money — lots of it. But if things go south, the potential losses are huge. In some cases, you could lose your entire investment.

1. Penny Stocks

There’s usually a good reason penny stocks are so cheap. Often they have zero history of earning a profit. Or they’ve run into trouble and have been delisted by a major stock exchange.

Penny stocks usually trade infrequently, meaning you could have trouble selling your shares if you want to get out. And because the issuing company is small, a single piece of good or bad news can make or break it.

Fraud is also rampant in the penny stock world. One common tactic is the “pump and dump.” Scammers create false hype, often using investing websites and newsletters, to pump up the price. Then they dump their shares on unknowing investors.

2. IPOs

You and I probably aren’t rich or connected enough to invest in an IPO, or initial public offering, at its actual offering price. That’s usually reserved for company insiders and investors with deep pockets.

Instead, we’re more likely to be swayed by the hype that a popular company gets when it goes public and the shares start trading on the stock market. Then, we’re at risk of paying overinflated prices because we think we’re buying the next Amazon.

But don’t assume that a company is profitable just because its CEO is ringing the opening bell on Wall Street. Many companies that go public have yet to make money.

The average first-day returns of a newly public company have consistently been between 10% to 20% since the 1990s, according to a 2019 report by investment firm UBS. But after five years, about 60% of IPOs had negative total returns.

3. Bitcoin

Proponents of bitcoin believe the cryptocurrency will eventually become a widespread way to pay for things. But its usage now as an actual way to pay for things remains extremely limited.

For now, bitcoin remains a speculative investment. People invest in it primarily because they think other investors will continue to drive up the price, not because they see value in it.

All that speculation creates wild price fluctuations. In December 2017, bitcoin peaked at nearly $20,000 per coin, then plummeted in 2018 to well below $4,000. That volatility makes bitcoin useless as a currency, as Bankrate’s James Royal writes.

Unless you can afford to part ways with a huge percentage of your investment, bitcoin is best avoided.

4. Anything You Buy on Margin

Margining gives you more money to invest, which sounds like a win. You borrow money from your broker using the stocks you own as collateral. Of course, you have to pay your broker back, plus interest.

If it goes well, you amplify your returns. But when margining goes badly, it can end really, really badly.

Suppose you buy $5,000 of stock and it drops 50%. Normally, you’d lose $2,500.

But if you’d put down $2,500 of your own money to buy the stock and used margin for the other 50%? You’d be left with $0 because you’d have to use the remaining $2,500 to pay back your broker.

That 50% drop has wiped out 100% of your investment — and that’s before we account for interest.

5. Leveraged ETFs

Buying a leveraged ETF is like margaining on steroids.

Like regular exchange-traded funds, or ETFs, leveraged ETFs give you a bundle of investments designed to mirror a stock index. But leveraged ETFs seek to earn two or three times the benchmark index by using a bunch of complicated financing maneuvers that give you greater exposure.

Essentially, a leveraged ETF that aims for twice the benchmark index’s returns (known as a 2x leveraged ETF) is letting you invest $2 for every $1 you’ve actually invested.

We won’t bore you with the nitty-gritty, but the risk here is similar to buying stocks on margin: It can lead to big profits but it can also magnify your losses.

But here’s what’s especially tricky about leveraged ETFs: They’re required to rebalance every day to reflect the makeup of the underlying index. That means you can’t sit back and enjoy the long-haul growth. Every day, you’re essentially investing in a different product.

For this reason, leveraged ETFs are only appropriate for day traders — specifically, day traders with very deep pockets who can stomach huge losses.

6. Collectibles

A lot of people collect cars, stamps, art, even Pokemon cards as a hobby. But some collectors hope their hobby will turn into a profitable investment.

It’s OK to spend a reasonable amount of money curating that collection if you enjoy it. But if your plans are contingent on selling the collection for a profit someday, you’re taking a big risk.

Collectibles are illiquid assets. That’s a jargony way of saying they’re often hard to sell.

If you need to cash out, you may not be able to find a buyer. Or you may need to sell at a steep discount. It’s also hard to figure out the actual value of collectibles. After all, there’s no New York Stock Exchange for Pokemon cards. And if you do sell, you’ll pay 28% tax on the gains. Stocks held long-term, on the other hand, are taxed at 15% for most middle-income earners.

Plus, there’s also the risk of losing your entire investment if your collection is physically destroyed.

7. Junk Bonds

If you have a low credit score, you’ll pay a high interest rate when you borrow money because banks think there’s a good chance you won’t pay them back. With corporations, it works the same way.

Companies issue bonds when they need to take on debt. The higher their risk of defaulting, the more interest they pay to those who invest in bonds. Junk bonds are the riskiest of bonds.

If you own bonds in a company that ends up declaring bankruptcy, you could lose your entire investment. Secured creditors — the ones whose claim is backed by actual property, like a bank that holds a mortgage — get paid back 100% in bankruptcy court before bondholders get anything.

8. Shares of a Bankrupt Company

Bondholders may be left empty-handed when a corporation declares bankruptcy. But guess who’s dead last in terms of priority for who gets paid? Common shareholders.

Secured creditors, bondholders and owners of preferred stock (it’s kind of like a stock/bond hybrid) all get paid in full before shareholders get a dime.

Typically when a company files for bankruptcy, its stock prices crash. Yet recently, eager investors have flocked in to buy those ultracheap shares and temporarily driven up the prices. (Ahem, ahem: Hertz.)

That post-bankruptcy filing surge is usually a temporary case of FOMO. Remember: The likelihood that those shares will eventually be worth $0 is high.

You may be planning on turning a quick profit during the run-up, but the spike in share prices is usually short-lived. If you don’t get the timing exactly right here, you could lose big when the uptick reverses.

9. Gold and Silver

If you’re worried about the stock market or high inflation, you may be tempted to invest in gold or silver.

Both precious metals are often thought of as hedges against a bear market because they’ve held their value throughout history. Plus in uncertain times, many investors seek out tangible assets, i.e., stuff you can touch.

Having a small amount invested in gold and silver can help you diversify your portfolio. But anything above 5% to 10% is risky.

Both gold and silver are highly volatile. Gold is much rarer, so discovery of a new source can bring down its price. Silver is even more volatile than gold because the value of its supply is much smaller. That means small price changes have a bigger impact. Both metals tend to underperform the S&P 500 in the long term.

The riskiest way to invest in gold and silver is by buying the physical metals because they’re difficult to store and sell. A less risky way to invest is by purchasing a gold or silver ETF that contains a variety of assets, such as mining company stocks and physical metals.

10. Options Trading

Options give you the right to buy or sell a stock at a certain price before a certain date. The right to buy is a call. You buy a call when you think a stock price will rise. The right to sell is a put. You buy a put when you think a stock price will drop.

What makes options trading unique is that there’s one clear winner and one clear loser. With most investments, you can sell for a profit to an investor who also goes on to sell at a profit. Hypothetically, this can continue forever.

But suppose you buy a call or a put. If your bet was correct, you exercise the option. You get to buy a winning stock at a bargain price, or you get to offload a tanking stock at a premium price. If you lose, you’re out the entire amount you paid for the option.

Options trading gets even riskier, though, when you’re the one selling the call or put. When you win, you pocket the entire amount you were paid.

But if you end up on the losing side: You could have to pay that high price for the stock that just crashed or sell a soaring stock at a deep discount.

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What Are the Signs That an Investment Is Too Risky?

The 10 things we just described certainly aren’t the only risky investments out there. So let’s review some common themes. Consider any of these traits a red flag when you’re making an investment decision.

  • They’re confusing. Are you perplexed by bitcoin and options trading? So is pretty much everyone else.If you don’t understand how something works, it’s a sign you shouldn’t invest in it.
  • They’re volatile. Dramatic price swings may be exciting compared with the tried-and-true approach of investing across the stock market. But investing is downright dangerous when everything hinges on getting the timing just right.
  • The price is way too low. Just because an investment is cheap doesn’t mean it’s a good value.
  • The price is way too high. Before you invest in the latest hype, ask yourself if the investment actually delivers value. Or are the high prices based on speculation?

The bottom line: If you can afford to put a small amount of money in high-risk investments just for the thrill of it, fine — as long as you can deal with losing it all.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to DearPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com