10 Investments You Don't Need

From absolute-return funds to shares of bankrupt companies, steer clear of these lemons.

By Elizabeth Ody, Associate Editor, Kiplinger's Personal Finance

Jeffrey R. Kosnett, Senior Editor, Kiplinger's Personal Finance

July 23, 2009

With so much flotsam littering the investment universe, we usually limit ourselves to pointing you toward the few stocks, bonds and funds worthy of your portfolio. But occasionally there come along new products so hazardous to your wealth that they merit a spotlight all their own.

In our Hall of Shame, we list the most idiotic investment ideas around. Some are gimmicks, others prey on investors' fears and a few are downright silly.

RELATED LINKS
	20 Ways to Waste Your Money
	Why I Would Avoid Index Funds
	Avoid This Principal-Protection Fund

Single-state stock ETFs

In a pitch to local pride, one promoter is trying to launch exchange-traded funds that track indexes of Texas and Oklahoma stocks. Those states are in better financial shape than most, but in each case the ETF would be dominated by energy stocks. Moreover, why should anyone care whether a producer of oil and gas -- which, after all, are commodities -- hails from Dallas or Tulsa rather than Denver or Dubai?

Two years ago, a different outfit toyed with StateShares. It was the same idea, but on a national basis-that is, an ETF for each of the 50 states. It never came to fruition, and just as well: The wheels would have come off the Michigan fund. The New York portfolio would have gone the way of AIG, Citigroup, Merrill Lynch and the rest of what used to be known as Wall Street. Good businesses just aren't this local anymore.

REITs under lock and key

How can you fathom a real estate investment that denies you the opportunity to gain from rising property values? In a "non-traded," or private, real estate investment trust, you pay a fixed price (typically $10) for each unit. You get regular dividends from the income produced by rents from the offices, shopping centers or what have you. But the private REIT units don't trade -- except during certain windows of time when you can redeem them to the issuer on the issuer's terms.

No problem, you may say, given that the shares of traditional, publicly traded REITs crashed during the bear market (along with so many other kinds of stocks). Property values will surely recover, however, and prices of public REITs will rise to reflect those higher values. But private REIT investors get no such benefit unless the trust liquidates-and even then, double-digit-percentage sales charges and high annual fees will erode the gains. Moreover, many private REITs have suspended all redemptions. That has the regulatory group Finra examining the sale and promotion of these illiquid deals.

Overpriced buffet with Buffett

No offense to the Oracle of Omaha, but the Toronto investment firm that recently won an auction for the right to have lunch with Warren Buffett definitely overpaid. Even a few hours with the Great One isn't worth $1.68 million. Surely, whoever attends from the victor, Salida Capital, will walk away stuffed with folksy Nebraskan wisdom. And Buffett, after all, isn't keeping the money, which is going to charity.

A smarter way to pick Buffett's brain is to buy shares of Berkshire Hathaway itself. With $1.68 million, you could have bought 17 shares of Berkshire's Class A shares (symbol BRK-A) at the going rate (as of July 23) of $93,500 each. With the stock trading at 1.39 times book value (assets minus liabilities), the folks at Salida would have gotten a better deal. And they'd have had $90,800 left over in pocket change -- enough to pay for a few repasts at Canada's finest restaurants and cover the cost of traveling to Omaha next May for Berkshire's annual meeting, where Buffett normally waxes eloquent for hours about the markets, the economy and his company.

Currency roulette

True story: One day not long ago, a New York City subway car was lined from end to end with ads for a get-rich-quick trading scheme involving the dollar, the euro, the British pound and luck. To play, you need $2,000, an understanding of all the flashing numbers on your computer screen, and the chutzpah to guess when and whether the U.S. dollar will be worth more or fewer scraps of the world's other currencies.

This game goes on all day and all night, so you can wake up that much richer-or poorer. It's like electronic roulette at a casino, except roulette is undeniably a game of chance, while promoters of currency trading claim that "forex" (foreign exchange) involves skill and knowledge. An expert told us that 90% of those who try this stuff lose money. That's unacceptable for something that's held out as an investment instead of a wager.

1 |
• 2
• NEXT >

• Print
• Comments
• Email
• RSS