Humphrey Yang is a content creator and entrepreneur who loves to talk about personal finance. He has over 5 million followers on Instagram, TikTok and YouTube.
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On Instagram, Yang recently posted about the four worst investments you can make. Here’s what he had to say.
Timeshares
Timeshares, said Yang, are “where you buy into partial ownership of a vacation home, and you get to use a specific property for a specific time each year. But you are paying a lot to have the privilege to stay at that place. And then you are locked into going to that place, and you don’t really own it like you would real estate.
“There are a lot of annual fees and expenses for said privilege, and if you ever want to get out of a timeshare agreement, good luck, because a lot of them are notoriously hard to get rid of.”
One of the primary reasons that timeshares are poor investments is that, unlike real estate you own, they don’t appreciate in value. When you buy into a timeshare, you may be buying a brand-new property, but when you try to sell it ten years later, there are dozens of newer properties for buyers to choose from. Plus, the timeshare agreement can make it difficult to sell, as Yang noted.
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Buying a New Car
Yang cautions against buying a new car. He said, “Once you drive the car off the lot, you’ll lose 10 to 20% of the car’s value, because cars are depreciating assets.”
According to CNBC, the value of a car declines to 50% of the original purchase price in just three years.
Owning a car is pretty much a fact of life in the U.S., but don’t think of it as an investment, because it’s nearly impossible to sell a car for more than you bought it for new.
Triple-Leveraged ETFs
Triple-leveraged exchange-traded funds (ETFs), according to Yang, “are funds that amplify your returns. So, when the market is up 1%, these funds might be up 3%. However, this also applies when the market is down 1% you will be down 3%. What’s crazy is that if the market is super volatile, the market can break even, but you can still lose money with a triple-levered ETF.”
A traditional ETF seeks to replicate the return of an index, like the S&P 500. A leveraged ETF seeks to produce returns that are a multiple of the index. So, a triple-leveraged ETF will try to earn three times the return of the S&P 500. To do this, the fund manager will need to use derivatives and other risky strategies.
Leveraged ETFs also often have higher expense ratios. The average expense ratio for a leveraged ETF is 0.95%, compared to 0.45% for a traditional ETF, according to Seeking Alpha. The higher expense ratio results in more cost to the investor, which will decrease returns.
Investing in Anything You Don’t Understand
Yang said that this is the most important of all.
“Just because your friend tells you to invest in something doesn’t mean that you should,” Yang said. “And this is how people get into big trouble with their money.”
Yang is in good company with this advice. Legendary investor Warren Buffett is famous for staying away from technology companies for many years because he did not understand them. Peter Lynch, who managed Fidelity’s Magellan Fund to an average 29.2% return between 1977 and 1990, said, “Buy what you know.”
There are a lot of good investments out there, so there’s no need to make any of these bad ones!
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This article originally appeared on GOBankingRates.com: 4 Worst Investments You Can Make, According to Humphrey Yang
