It is said that for every winning investment, there are 10 to 15 losing ones not far away. As high-achieving entrepreneurs and self-starters know, investing wisely — whether in talent, resources or a financial strategy — is a crucial component of success.
Every year, new trends take hold and the financial markets change. With these shifts come opportunities for investors to earn money; if their forecasts are correct and investments are timely. But, as with most things, investing does not always go according to plan.
Here are the investments that most savvy, yield-focused investors stay away from:
- Restaurants: Mario Batali and Wolfgang Puck may be uber successful, but they are the exception to the rule. In fact, investing in restaurants is actually one of the worst financial decisions you can make. The National Restaurant Association cites that over 60 percent of all restaurants fail within their first three years of business, and 75 percent are gone within five years.
- Movies: The structure of most film investments puts individual investors at a disadvantage from the start. According to the Wall Street Journal, “Movie investors are generally the last ones to get paid — after lenders, distributors, actors, the crew, even the caterer.” Though the ROI for investing in the production of a film can be 50 to 100 percent in the case of a wildly successful venture, more often than not, things go wrong: the production budget could be miscalculated, the producer may never find a distributor to get the movie into theaters, or the movie might perform poorly. These investments are best left with the Paramounts and Fox Studios of the world.
- Boutique hotels: The hospitality industry is notoriously volatile. During recessions, hotel stays can fall precipitously as vacation and business travel drops. Although hotels look like real estate, they act as operating businesses. Boutique hotels are not able to advantage themselves to the global reservation systems that drive sales or enormous economies of scale that cut costs. Moreover, an enormous amount of capital is required to build a successful boutique hotel where you must make major assumptions around style, target audience and location.
- Bitcoin: If you are looking for volatility and instability, Bitcoin is the right investment for you. As of late February, Bitcoins were valued at just under $253. On January 15th, they were at $177.28. On August 20th, they were $511.93. And on June 3rd; $665.73. Headlines like “How I Lost Half of my Retirement Investment in Bitcoin” and “Bitcoin is the Worst Investment of 2014” are not uncommon to see, in part due to these severe fluctuations.
- IPOs: IPOs can be extremely challenging to access as an individual, as brokers often save large volumes of shares for preferred clients. Unfortunately, the best-priced IPOs are given to top clients, making it difficult for retail investors to enjoy the frequent run-up as they shake off the underwriter’s initial discount. Additionally, IPOs have many unique risks due to their lack of market-price discovery. This makes them different from the average stock, which has been trading for years and has copious, truly objective information on past performance.
- Currencies: Investing in currencies is a true gamble, especially without a sophisticated knowledge of international economics. An investment in a currency is heavily influenced by changes in exchange rates and foreign taxation, along with ever-occurring political shifts. In 2014, according to Bloomberg, every major currency fell against the U.S. dollar.
- Entertainment Venues: With door charges, markups on alcohol and lines a block long, the entertainment business might seem like an easy win. Wrong. Opening a venue in desirable locations can require millions in real estate and startup costs. Identifying a market need and executing the timing to a tee can requires significant research, along with a hefty amount of luck.
Even ruling out all of the investments mentioned above, there are thousands of opportunities to invest wisely and build a diversified, high-yielding portfolio. Whether its in the stock market, investing in real estate through investment crowdfunding, bonds, or another strategy, due diligence and diversification are key across the board.
Daniel Miller is the Co-Founder and President of Fundrise.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.