5 Investments That Are a Complete Waste of Money

Investing is the most effective way to build wealth, and I talk about it all the time in my book, my Netflix show, and my podcast. You don't have to be an expert, and you actually don't need that much money to get started. But it is easy to get lured into scams, and that's because an entire system is set up to prey on you. Do you even understand how you are being preyed upon? Think about a deer in the forest. Oh, so cute. Bambi. They're always looking around, though. Flickering their ears on alert because they know they're in danger. But with investing, people have no idea how they are being taken advantage of. You know, I came across a story of a 56-year-old woman. She invested $150,000 in a pharmaceutical company in her 30s based on her friend's recommendation. Well, that company recently folded. She lost all of her money, money she was counting on for her retirement. She felt so guilty and ashamed, she finds it difficult to move on. So if you came across a lump sum of money or you just wanna start investing more of your paycheck, I'm gonna show you 5 red flags. If you see any of these, beware, or you might find yourself in a very dangerous position. By the way, the 5th one is the hardest to resist. I will cover it in detail. That way you don't fall victim to it. So let's dive right in. You freaks think you want control all day long. In our normal days, we want control. Control over our jobs, control over our kids' safety, control. Control is comforting, but with money, that control leads us astray. For example, if you had invested $10,000, just kept your money in the market for 15 years, you'd end up with about $30,700. But if you missed the best 30 investing days, you would only have $6,873, meaning you would have actually lost money. Now, why am I telling you this story? Because you think you can control when to invest. Is it high? Is it low? Ooh, the newspaper says it's really dangerous. I better pull my money out. If you were trying to control your investments and invest when the market was low, and if you were trying to sell when the market was high, you would have likely lost hundreds of thousands of dollars over the course of your lifetime. Can I tell you something you're going to find hard to believe, yet it's true? In investing, you actually want less control. As an example of how this works in the real world, over 80% of professional investors still fail to beat the market. Let me put it another way. You know those fancy people on Wall Street wearing those $3,000 suits? Even though they have access to essentially unlimited money, talent, offices, and technology, they still fail to beat a simple Vanguard fund that you and I can invest in. Guys, you don't need more control with your money. You want more control with your money? Decide what bagel you want to eat on Saturday morning. Decide if you want to spend 34 hours deciding, should I get the Chase Sapphire Reserve or the Amex Plat? Get a life. You don't need more control with your investments. Now, later on, I'll show you a time-tested investment strategy that you can follow. But first, let's get through the rest of these red flags. As you can tell, some of the red flag in this video is you. A while back, I had a couple on my podcast. They were $30,000 in credit card debt, but you know what they ended up doing? Buying a timeshare. They thought they were getting a free breakfast while they were on vacation, but it ended up being part of a timeshare presentation. And timeshares, especially to the average person, seem like an unbelievable deal. You're telling me that I get free breakfast that I get to stay here 2 weeks at a time and I'll actually get additional perks all for the price of a simple hotel? Timeshares are one of the many examples in our culture of lifestyle porn. They present aspirational beauty and you want to be a part of it. I want those beautiful views. I love palm trees. I want to drive this fast car. It's so cool. No, I don't have a midlife crisis. I just really love to hear it go vroom. But what you don't think about is aside from that new car smell, which I will admit is pretty fucking cool, is the payments for years and years afterwards. And not just the payments of the car, the additional costs, the parking, the gas, the maintenance, the all the transaction fees, all of it. You don't think about how you made that purchase because it was so cool, but 4 years later and tens of thousands of dollars paid towards this car, it's just a car that gets you from place A to B for most people. You don't think about how your money is now stuck, even if you don't want to go back to that timeshare location anymore. Many people buy the dream, but they do not pay attention to the reality. For example, buying some freaking McMansion 2 hours away from work. Go suck. Cool. I got a yard. I love land. Did you think about having to get in that freaking car, drive to work 1 hour, 1.5, 2 hours, drive back in traffic, exhaust all podcasts on planet Earth, incur massive amounts of gas and maintenance? No, you just thought about a freaking yard that you could take a picture of and post on Instagram. Homeowner, love it. Huge McMansions, expensive luxury cars, European vacations, home renovations, and the convenience of ordering food out almost every single night. Listen, I love this stuff. All right. I love taking a vacation. I like ordering food. It's fine. We need to remember, number one, can we afford it? Number 2, is it actually important to us? Many of us are sold the dream, but we don't think about the reality. So especially with major purchases like a house, a car, a timeshare, home renovations, falling for lifestyle porn once can cost you for decades. The next red flag is financial advisor fees. Now, for those of you who've seen my Netflix show, you might remember Natalie. When I caught up with her again, I had to pull out the calculator and remind her that her financial advisor, probably a guy named Chet or Chad, was costing her $141,000 over 10 years. Now, I don't mind paying a lot of money for somebody who's gonna add value to my life, whether it's a home cleaner, whether it's a personal trainer, a coach, physical therapist, but financial advisors often charge a 1% annual fee. Now, what other part of life would you pay 1%? Would you pay that to your gardener? Would you pay that to a personal trainer? No, these fees cost you a tremendous amount of money that very few people understand. Again, I don't mind if you pay someone $500 or even $1,000 a month to mow your lawn. At least you know the exact amount you're paying. But a 1% fee is engineered to be confusing. Let me show you what I mean. Let's say you're able to invest $50,000 and then every month after that, another $1,000. In 35 years, with a 0.2% low fee that you'd pay with a typical low-cost index fund, assuming a 7% return, you'd have just over $2 million. But if you pay a financial advisor 1%, you would have only $1.7 million. Let me repeat that crazy number. That's more than $380,000 going to your advisor's pockets in fees and lost returns. Now, I'm going to tell you it straight. I would never pay a percentage of assets under management. I would and have happily paid a financial advisor to help me out, to take a second look at my asset allocation, to show me if I'm not considering certain risks. I think a lot of people can manage their own investments on their own. In fact, I'm going to show you in a minute. But if you have a complicated situation or a large portfolio, you're getting closer to retirement, sure, it can be helpful to work with a professional. Again, I've done it myself, but I would never pay AUM. Now for a flat fee financial advisor, I recommend our partners at Facet. Facet offers dynamic financial planning that evolves with you, including monthly check-ins to help keep you accountable so you can stay on track with your goals. All Facet planners are CFP professionals and fiduciaries supported by a team of specialists. Oh, and by the way, they do not charge a percentage of your assets. Instead, they charge an affordable flat membership fee for financial planning. I've actually worked with them to help many couples on my podcast understand if they can retire early or pay for their kids' college or take better vacations every single year. So if you've ever wished that you had a smart team to look over your investments and help make sense of all of your financial choices, check them out to see if financial planning is a fit for you. You can head to facet.com/Ramit or click the link in the description below. All right, let's talk about the next big red flag. Basically, if you see a guy wearing an ill-fitting polo shirt and shorts writing on a whiteboard using all kinds of complicated diagrams, you're about to get your ass ripped off. Some people really believe that if you just pick the right investment, you can get 20% returns every single year. That's like me telling you you can run a 2-minute mile. Unrealistic in the first place. Oh, and you can do that for 60 miles at a time. You just have to— wait for it— buy the right shoes, which I happen to sell. What the fuck is wrong with you? I'll tell you what's wrong with you. It's not that you're a bad person. I love you. You're watching my YouTube video. Make sure you click subscribe so you can continue getting more awesome videos. Where I insult you and then proceed to teach you. What's wrong is that you do not understand the basics of how investing works. And so when somebody comes around and says, look at my cool fucking car, it's red, and also you can get 21% returns, it's so awesome, sign up for my scammy fucking thing, you go, oh wow, I want a red car too. Let's learn how this actually works. You can't beat the market year after year consistently. I don't care that you're about to talk about Ray Dalio or Renaissance Investing. You don't have access to those. You're not getting into Renaissance even if you have $10 million cash liquid, even $50. They don't want your money. Okay. Individual investors freaking walking around, dentists, doctors trying to tell everybody, oh, please take my money. I'm a sophisticated investor. Let's talk about our friend Bernie Madoff, who promised returns as high as 18 to 20% regardless of market conditions. And a lot of people said, wow, oh, that's so cool. I live in the Hamptons. I want access to this. For years, nobody could really figure out how he was doing it. And do you know why? Because He was scamming people. He took investors' money and essentially ran a Ponzi scheme. Now, whenever someone wanted to withdraw money, he just used other people's money to cover that. And as long as somebody didn't come looking for their money all at the same time, he could keep the scheme going. Of course, eventually he was caught. In the end, he scammed people out of $65 billion, the largest Ponzi scheme in history. His victims included Hollywood celebrities like Kevin Bacon and many, many sophisticated business owners, including former Mets owners. Madoff was sentenced to 150 years in prison for security fraud, money laundering, and other felonies. He ended up dying in prison. Now, can I get real with you about how investing actually works? Not freaking scams and people making promises that are unrealistic. The truth is the market has returned approximately 10% a year on average since 1957, and almost nobody can consistently beat that. There is a chapter in my book, Chapter 6 of I Will Teach You to Be Rich, called The Myth of financial expertise. You can read tons of research in there about why this number persists. Now, S&P Dow Jones Indices did a study starting in 2000. If a fund manager beat the market one year, they often failed to do it the following years. So what happens is you might have a hot streak for one year, maybe two, but over time you tend to regress to the mean. And then when you factor on all the fees that they charge typical investors, it becomes nearly impossible to even match the market, much less beat it. Are you tired of playing defense with your money? Of always worrying that you've spent too much, even for something as small as buying a tea? What if we could go on offense with our money? What if we could become so confident that we could feel good about spending on the things we love? That is what my money coaching program is all about. Every single month in the program, I'll show you how to automate your finances, pay off your debt faster, invest your money, and actually spend on the things you love guilt-free. You do not need another budgeting app. What you need is a proven system and coaching and a supportive community that gets you results. You'll find that in my money coaching program. Go to iwt.com/moneycoaching or click the link in the description below to join the program today. You know, there's a funny Wall Street joke that by the time your Uber driver or barber is giving you investing advice, get out. Because it's over. You can see why Wall Street people need to get a life. They're not that funny. But the point is, it's easy to spot the next big thing because everyone is talking about it. There's a buzz, there's an urgency. The problem is that they're often fly-by-night trends. And again, by the time that the average person is talking about it, or what Wall Street refers to derisively as dumb money, it is way too late. The smart money has already pulled out. You're going to lose a ton of money. I'm telling you right now, Grandma, Grandpa, you're not even watching this video. When was the last time you logged onto YouTube. Your money is about to get taken away by sophisticated Wall Street investors who already made their money, and now they're looking for the next prey. Y'all remember NFTs? Back in 2022, they were touted as the next big thing. Justin Bieber, so cool, he spent $1.3 million on a Bored Ape NFT. By mid-2023, the value of it collapsed by over 95%. Oh, and suddenly everybody changed their avatar on Twitter. Hey, where did those ape pictures go? It's like they never existed. Same thing with many alt cryptos, meme stocks. There's something called survivorship bias. Basically what it means in the investing world is you only hear from the investments that survived, the ones that didn't simply get wiped from memory and also wiped from the prospectuses where they tell you how well their investments have performed. Do you understand the fucking scam being run on you? I'm about to break this scam down right now. If you look at how mutual fund companies evaluate their investments, they'll say something like, "90% of our mutual funds are rated 5 stars." And you go, "Oh, wow, that sounds really good. I should probably invest. I love stars. So cool." Then if you dig in deeper, you discover whenever a mutual fund underperforms, the fund company takes it out back and shoots it in the head. They go, "Ah, fuck this mutual fund. Get the fuck out." And so the only ones that persist after 7 or 10 years are the ones that are still performing. Do you understand the scam? Because you're the one being scammed. They only show you the best performing ones and therefore by default they are 95% 5-star funds. This is called survivorship bias. Please learn about it. You don't even realize the game that's being played around you, but you are the victim. Hold on. I'm getting mad. Let me tell you why I'm getting mad. I don't mind if some sophisticated Wall Street investor loses their money because fuck you. You know the risks. You know the game you're playing. I do mind if an everyday person like a schoolteacher says, you know what, I really want to invest for my family's future. They don't understand the games being played around them. It's like they walked in to make an investment. They're really interested in doing the right thing and everyone else in the room is in on it. Anything your friends or family are trying to talk you into probably falls into this category as well. You think I'm listening to what some rando is telling me about individual investments? Oh yeah, Nvidia. So fucking true. You never want to go all in on any single investment. Instead, you want to diversify, and you want to understand how asset allocation works. Now, this is the time-tested path to building serious wealth. You want to be diversified across stocks and bonds. Within stocks, you want to have large-cap, mid-cap, small-cap, maybe some international stocks in the mix as well. Bonds, you want to be well diversified as well. And there are low-cost index funds that do all of this for you. They pretty much just invest in the entire market. That is how generally you can make about 8 to 10% a year. Over time. Now, again, in general, the younger you are, the more you will have invested in stocks. As you get older, that's going to become a little bit more conservative and become weighted a little bit more towards bonds. And if you're like, what is this guy talking about stock? I don't want to learn all this shit. I don't even want to read Chapter 7 of I Will Teach You to Be Rich, which explains all of this. Target date funds are made for you. They automatically adjust asset allocation for you. You just pick a fund based on your retirement date and that is it. Like Vanguard, Fidelity, Schwab. If you're going to retire in 2065, they have a 2065 fund. That's it. Now, if you have your asset allocation all squared away and you want to invest in crypto or whatever individual investment, the next big thing, be my guest. I actually encourage you to have a little fun with your money. Allocate 5% of your money to something speculative, but don't be surprised if you lose money. It's okay, but make sure you control your risk. And if you want more details on investing, check out this video on the best investing strategies if you're making $25K, $60K, or $100K.