THE HIGHER THE RISK – THE HIGHER THE REWARD
Ever heard the phrase, “you don’t get anything for free”?
Ok, I have this investment it pays 12% a year, every year, it has been around. And it is rated AAA by all the big rating agencies. Or you can make 5% a day on your money with minimal risk. Bonds are safe, guaranteed a fix percentage and a programmed to make you money. Gold will double or triple in the next five years. Or there is this sure fire method to trade currency with binaries so that your chances are better than 50%…. Etc.. Etc.. Etc..
So I could write a book on each investment instrument, but let me try to explain their perils in a couple of paragraphs each. Not all of these are bad. Truly, there are no bad investment type, they all have a purpose, they all suffer from crooked people peddling them however. And if your portfolio can afford to be diversified across instruments you should.
I am going to start with real estate and gold, because these are the easiest most people can relate too.
GOLD, Precious Metals, Jewelry, Stones, etc… are all similar.
So lets go buy and sell some gold.
You went to a store and bought a watch or ring for $2000, do you realize it is probably worth less than $800? The retail markup on jewelry is over 200-300%. That is not even accounting for all the fakes out there. Or try this… Your mom left you a bracelet, and now you need the money. You don’t know what she paid for it. She probably paid someone more than it was worth. She paid retail for it, when gold was $200 an ounce about 20 years ago. The price has gone up to $2000 and down to $200 in those 20 years, and even though she bought it at a time when gold was $200 oz, she paid $300 for this bracelet that is only a 1/4 of an oz gold. It is 14k gold which, it isn’t pure anyway and she paid a premium for being jewelry. So now gold is $1400 an oz. and everyone tells you the price is going to go up further, but you need the money. So the jeweler or pawn broker, weighs the item, checks to see what kind of gold it is,looks at you and then makes you an offer. You don’t know if he weight it correctly, or credit you for the right kind of gold, he gives you a number, take it or leave it. One thing I know for sure is that he did not pay you what it was worth.
You see any and all Gold brokers, jewelers, or pawn broker, buy from you below what it is worth and sell it to you at more than it is worth. They control their profit, they could pay you half, and sell it to you for double. So when you buy gold realize that when you take it back to the same guy, he will not give more than 75% of what it worth, and he has already overcharged you an extra percentage already.
Please if you believe that the gold broker is you friend, then you should pull all your teeth out and give them to the tooth fairy. Does gold have a purpose, sure it is an easy way to hide money. Chances are you going to lose it and when an emergency comes and you want to sell it, you’re going to lose again. It is death on the way in and out, plus notice, no one says that price won’t go down like a rock, they just say it will never be zero, neither will a chicken.
The wealthy people of the world buy these commodities from the poor souls of developing countries and sell them to you, because you think they are worth something. If they thought their cost would truly go up to 2 or 3 thousand dollars an ounce, would they be selling them to you? Wealthy people buy your Rolex when your broke and sell it to some other wannabees for a profit later, unless somebody steals it from them. We got robbed by some kids a few years ago, $8,000 in my wife inherited jewels were sold at a local pawn shop for $500.
There is no guaranteed real value or benefit that can be assign to these items, their value is based whatever is going on now.
Perceived value… money has no value, nor do stocks, gold, silver or real estate they go up and down in relation with everything else . That is why they are good for trading not good to own long term.