As co-host of The Ramsey Show, money expert George Kamel believes in myth-busting investment advice. In a recent YouTube video, he shares four commonly recommended investments he thinks people should avoid.
Some are riskier than their advocates make them seem. Others are relatively safe but less lucrative than other options. Check out Kamel’s reasoning and find out where to look instead.
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Bank Investments
Kamel said this tip might be tough to swallow. Most of us grew up thinking of the bank as the safest place to keep our money. That’s still true, but according to Kamel, it’s not the best place for that money to grow.
As Kamel explained, banks are in the business of growing their assets. The investment products they recommend will help their bottom line but not necessarily yours.
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Bank Product No. 1: CDs
Take certificates of deposit, which banks call CDs. According to MarketPlace, a CD lets you deposit money for a set term, usually six months to five years. That money will usually earn more than it would in a savings account.
Unfortunately, CDs charge fees if you try to withdraw your money early. Those fees can be high enough to cancel out your earned interest, according to PNC. Meanwhile, the bank has been using your money to profit, possibly by lending to borrowers for higher interest rates.
Bank Product No. 2: Bonds
Bonds are another bank-issued product that usually isn’t your best bet, Kamel said. An investment bond is a small loan you make to the issuing organization, which pays you back with interest. You get that money when the bond matures or when the issuing agreement promises a payout.
Bonds are relatively safe investments because they’re not subject to the stock market’s volatility. Banks benefit because as with CDs, they have custody of your money until maturity. But there are better things that money can do.
Universal or Whole Life Insurance Policies
Kamel also included permanent life policies on his list of bad investment suggestions.
Whole, universal and variable life insurance policies fall under the permanent life umbrella. Banks and financial influencers recommend them because they include the option for a savings or investment component.
Why People Invest
Insurance-based savings and investment accounts typically grow tax-deferred, which is part of why influencers recommend them. You only pay taxes if you withdraw, according to the U.S. Securities and Exchange Commission.
The Downsides
If your insurance-based investments lose money, you’ll have to use your policy value to make up the difference. That might mean a smaller death benefit for your heirs.
Even if your savings or investment component grows, you can’t leave it to your beneficiaries. The insurance company can keep any cash value in your policy when you die, according to Guardian Life.
Plus, according to Kamel, you can find better rates of returns with other products, such as mutual funds.
Leveraged Real Estate
Leveraged real estate is an investment property you buy with borrowed money. Kamel said the goal is to generate rental income and build equity so you come out ahead.
If you think that sounds risky, you’re right.
Risks in the Real Estate Market
The real estate market is extremely volatile, Kamel explained. Housing prices have always been vulnerable to various economic factors, including interest rates, unemployment and inventory. A market downturn can destroy your equity, leaving you with a loan you can’t repay.
It’s a major gamble. And, as Kamel disclosed, it’s how financial guru Dave Ramsey went bankrupt. He had leveraged debt to invest in real estate when a bank called in his loans.
Current Conditions
Today, the market is even more unpredictable. Rising interest rates have made mortgages more expensive and the global economy has made future conditions difficult to predict.
In such a volatile market, the risk of leveraging is even higher. Possibilities include:
- Rising interest rates making it difficult to keep up with mortgage payments
- Dips in market value leaving you owing more than your properties are worth
- Rising property maintenance costs taking too much of your income, leaving you without enough to pay off your debt
If you’re committed to real estate investing, Kamel said to save enough to buy a property with cash. It takes longer, he said, but the risk is much lower. You can’t go underwater on a mortgage you don’t have.
Investing Apps
Near the end of his video, Kamel issued a “bonus warning,” which was to stay away from popular investment apps like Acorns, Robinhood and CashApp.
These apps make stock buying accessible to the general public, which sounds positive. Some apps, like CashApp, even break down your investment options with expert advice, price notifications and market alerts.
The information is helpful, but apps don’t offer it solely to help you. They use notifications and alerts to get your attention and encourage you to buy more stocks.
Kamel said those stocks may not be suitable for your interests. Apps frequently offer high-risk investment options that casual investors aren’t prepared to handle. They push “hot stocks” and trendy products to get you active and there’s no accountability if you lose.
Where Should You Invest Instead?
After warning you away from non-lucrative and dangerous investment options, Kamel offered two pieces of positive advice.
Tax-Advantaged Retirement Accounts 401(k) and Roth IRA
Kamel’s first recommendation is to max out your retirement accounts, such as your 401(k) or Roth IRA. A 401(k) lets you contribute pre-tax earnings and may have an employer match. A Roth IRA doesn’t go through your work, so you might have more investment choices.
Index Funds
Kamel also recommends index funds, which are investments that follow the performance of a particular group of stocks. They’re beginner-friendly and make it easy to diversify your portfolio, thus reducing the risk of investing.
You can learn about index funds online or through a brokerage, as reported by CNN. If you’re new to investing, a financial professional can offer guidance. Look for someone with credentials and avoid the hype from online influencers.
As Kamel said as he closed his video, “get rich quick” often means going broke faster. Slow and steady wins this race.
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This article originally appeared on GOBankingRates.com: George Kamel: 4 Places You Should Never Invest Your Money and Where To Invest Instead
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