10 Investments You Don't Need

A selection of stinkers sure to be hazardous to your wealth.

By Jeffrey R. Kosnett, Senior Editor

Elizabeth Ody, Associate Editor

From Kiplinger's Personal Finance magazine, October 2009

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. Granted, those states are in better financial shape than most, but in each case the ETF would be dominated by energy stocks. Why should anyone care whether a producer of oil and gas -- which are, after all, commodities -- hails from Dallas or Tulsa rather than Denver or Dubai?

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Two years ago, a different money-management firm toyed with StateShares. It was the same kind of idea, but on a nationwide 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 American International Group, Citigroup, Merrill Lynch and the rest of what used to be known as Wall Street. Good businesses just aren't that local anymore.

Absolutely awful

The phrase absolute-return fund casts a wide net. But be especially wary of funds that claim they'll beat inflation by a certain number of percentage points each year. Putnam recently launched four such funds, which it hopes will beat Treasuries by one, three, five or seven points annually by darting among bond and stock sectors. Research from Morningstar shows such strategies rarely deliver on their promises.

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 needed $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 would 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, except roulette is undeniably a game of chance, and 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.

Gold bars just left of the Snickers

Yes, vending machines that spit out gold bullion are now popping up in airports and train stations. So far, the Gold to Go machines, dreamed up by German company TG-Gold-Super-Markt, have been installed only in Germany, but the company says it plans to expand to other European locations. Travelers can buy small coins, wafers and bars up to 10 grams in size for a whopping 30% markup to market prices. In test-runs the machines had some trouble giving the correct change.

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, and you get regular dividends from the income produced by rents from offices and shopping centers.

But 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). But property values will surely recover, and prices of public REITs will rise to reflect those higher values.

Private REIT investors, however, 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 Finra, the financial industry's watchdog, examining the sale and promotion of these illiquid deals.

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