It’s surprising how much money we can waste on investments without even realizing it. As Lonnie Thompson, an investment advisor principal, puts it, if you’re investing in something—whether that’s a strategy or a specific stock—without a clear purpose or plan, you might as well be throwing your money away.
But beyond that, are there particular investments that experts deem money wasters? We turned to six financial professionals to find out. If you’re looking for personalized assistance with your investments, there are resources like NAPFA and the CFP Board that can connect you with a financial advisor.
Experts Identify Wasteful Investments
High-Fee Mutual Funds and Certain AI Stocks
Jeff Muscatello, financial risk manager at Douglas Winthrop Advisors, warns about the hidden costs associated with wirehouse-promoted mutual funds. Investors can lose a significant chunk of their returns due to layered fee structures, which often leave clients unsure about what they are actually paying for. The current hype around AI investments is also troubling; Muscatello notes there’s a lot of money shifting between chip makers and software providers, potentially obscuring the true demand for their products.
Stocks Driven by Hype
Jason Burnat, President and CEO of American Financial Services, shares his thoughts on stocks influenced by social media and trends. He’s cautious about jumping on stocks that are just chasing fleeting buzz, especially in the wake of a substantial gold market return last year. Just because something performed well recently doesn’t guarantee future success.
Some Pensions and REITs
Ronnie Thompson, also an investment advisor, points out that while annuities have their place, they can be misused. They’re meant for specific goals, but if the wrong buyers invest in them, they could waste money. He also raises concerns about real estate investment trusts (REITs), which promise returns without the headaches of property management but still come with risks and liquidity issues.
Single-Family Rentals
Preston D. Cherry, a financial planner, argues that single-family rental properties may be overhyped, particularly among high-income earners. While the financial rewards are often emphasized, the time and emotional costs of managing such properties are frequently underestimated. They can complicate life rather than simplify it.
Investing with High Fees
Jillian Stevenson, a CPA and assistant professor, highlights that high fees for mediocre performance are a major waste of money. Whether it’s advisor fees or hidden fees in mutual funds and ETFs, it’s crucial to evaluate what you’re paying and consider more cost-effective options.
Chasing Hype
Ryan Haiss, a certified financial planner, warns against chasing stocks based on hype. Often, by the time the masses hear about a stock’s rise, much of the profit has already been gained. Investors can end up in a cycle of buying high and selling low, which can be detrimental to their returns. He stresses the importance of disciplined investing strategies grounded in clear goals and risk tolerance. Sometimes the most boring approaches yield the best long-term results.
