Rick’s Top Ten List of When Not To Invest

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Rick Ferri
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Rick’s Top Ten List of When Not To Invest

Post by Rick Ferri »

This is a full reprint from my recent blog.

Oh, how painful it has been to learn these lessons.

I’ve been around the investment industry for a long time and have made plenty of mistakes. I’ve also seen a lot of variations on the theme of investing, some of which have made the industry better and others of which seem like nothing more than elaborate ways to separate investors from their money. The growth in low-cost index investing has certainly been a positive. On the other hand, high-cost and low-quality products are still prolific in the marketplace.

The following is my Top Ten List of When Not To Invest. This list offers a few red flags to warn you when you might be getting sold something you’d best avoid. It’s far from a complete list, but it will help you learn from some of the mistakes I have encountered.

10.) If you can’t get clear answers to your questions about an investment, don’t buy it.

9.) If the risks in an investment are not clear to you, don’t buy it.

8.) If the costs to own an investment are not clear to you, don’t buy it.

7.) Avoid an investment that is promoted as “no cost to you” because you are still paying for it; you just don’t know how, or how much.

6.) Be careful about buying investments that you can’t get out of for weeks, months or years.

5.) When the words “proprietary,” “private” or “non-traded” are used, think “high-fee” and “illiquid.”

4.) Avoid products that are marketed as “smart,” because that’s just smart marketing.

3.) Don’t assume that a complex strategy is better than a simple strategy. The only thing extra complexity is likely to add is extra cost.

2.) Don’t buy investments from someone who is paid a commission without getting an objective second opinion.

1.) Don’t listen to anyone who says low-cost index funds are dangerous. What they probably mean is that index funds are dangerous to their livelihoods.

Charles D. Ellis wrote about making fewer mistakes in his classic book Winning the Loser’s Game. His observation was that winners don’t do anything special; they just make fewer avoidable errors than the losers. In investing, what separates winners from losers is the number of unnecessary mistakes we make.

I’m sure any experienced investor could share his or her own “when not to invest” lessons learned the hard way. We all have battle scars. The trick, as Ellis would agree, is not to incur any more.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
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cfs
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Re: Rick’s Top Ten List of When Not To Invest

Post by cfs »

Thank you.

Thanks for another great article. Keep them coming.

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livesoft
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Re: Rick’s Top Ten List of When Not To Invest

Post by livesoft »

That's a good list.

Here's an example of what not to buy:

Would you buy an investment that returns about 1% to 2% guaranteed, but has a 10% early withdrawal penalty?

Many people apparently do because CDs are not marketed as well as these other investments and don't come with a free dinner:
http://blog.runnymede.com/an-impartial- ... efit-rider
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Taylor Larimore
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Very important advice in few words

Post by Taylor Larimore »

Rick:

This is another one of your helpful articles--very important advice in few words.

Thank you for sharing.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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BTDT
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Re: Rick’s Top Ten List of When Not To Invest

Post by BTDT »

Thanks Rick!

Well said
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Re: Rick’s Top Ten List of When Not To Invest

Post by avenger »

Thanks Rick! Good list!
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, BND, VTEB, SV fund]
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Clever_Username
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Re: Rick’s Top Ten List of When Not To Invest

Post by Clever_Username »

Rick Ferri wrote:His observation was that winners don’t do anything special; they just make fewer avoidable errors than the losers. In investing, what separates winners from losers is the number of unnecessary mistakes we make.
So very true in so many things. I got better at golf playing this way too.

Great list, and thanks for posting.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
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Taylor Larimore
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"Winning the Loser's Game" A Gem

Post by Taylor Larimore »

Charles D. Ellis wrote about making fewer mistakes in his classic book Winning the Loser’s Game. His observation was that winners don’t do anything special; they just make fewer avoidable errors than the losers. In investing, what separates winners from losers is the number of unnecessary mistakes we make.
Bogleheads:

I recently added "Winning the Loser's Game" to my "Investment Gems." This is a link to many of the book's great quotes:

Winning the Loser's Game

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Rick’s Top Ten List of When Not To Invest

Post by pdriese »

I had never thought about the parallel between sports and investing, but I think it's very true: the team/person who makes the fewest mistakes wins. Thanks for the salient points Rick.
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Re: Rick’s Top Ten List of When Not To Invest

Post by nisiprius »

Bookmarked.
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Re: Rick’s Top Ten List of When Not To Invest

Post by abuss368 »

Hi Rick,

A very good and informative posts that I will refer back to in the future.

Thank you for compiling.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Rick’s Top Ten List of When Not To Invest

Post by dms1709 »

I have learned so much from those on this site. This is just another example.

Thank You

Donna
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Re: Rick’s Top Ten List of When Not To Invest

Post by carolinaman »

A great list that is simple yet comprehensive. Thanks Rick!
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Rick’s Top Ten List of When Not To Invest

Post by shawcroft »

Rick:
Outstanding list of common sense practices with regard to investing. Now, (as my mother would say) if only common sense wasn't so uncommon...
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Re: Rick’s Top Ten List of When Not To Invest

Post by Tamahome »

Rick Ferri wrote:
7.) Avoid an investment that is promoted as “no cost to you” because you are still paying for it; you just don’t know how, or how much.
This reminds me of the free real estate seminar I went to that talked about a no-cost way of getting into real estate by getting options to purchase property and then selling those options. It was free to do! Except time. It would require a lot of time to seek out and vet houses. Oh, and you may want to pay for some signs. Flyers?

Essentially, the seminar was designed to build a huge marketing force at no cost for the parent company, essentially having hundreds of people hungry enough to pour time (and often a little of their own money) into getting deals to sell to the parent company for around a thousand bucks so that company could make the real money.

Pretty good marketing strategy for that company.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
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Re: Rick’s Top Ten List of When Not To Invest

Post by rca1824 »

Be careful about buying investments that you can’t get out of for weeks, months or years.
What about Traditional IRAs and 401ks, HSAs, whole life insurance policies, long-term bonds, and Vanguard mutual funds with 30-day holds?
5.) When the words “proprietary,” “private” or “non-traded” are used, think “high-fee” and “illiquid.”
What if you had the opportunity to invest in private equity? Private equity has been shown to outperform public equity probably because it is managed better. For example if you work for a small software company and your company offers corporate stock and you have high growth expectations for the company. Wouldn't it be a nice addition to one's portfolio provided it's not in excess of a certain fraction of the total?
Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. ~ WB
printer
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Re: Rick’s Top Ten List of When Not To Invest

Post by printer »

Nice list.

The title suggests that the article is about time, but the article seems to be not very much about time at all, more about what not to invest in. Don't invest when: the market is up, the market is down, you lost your job, you got a job - these are things that I might expect in an article about when.
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