Ready to invest more of your money in 2016? That’s smart. But what’s not smart is placing your dollars in bad investments. And unfortunately, there are plenty of terrible investments out there.
And when we say investments, we aren’t only talking about the stocks-and-bonds type. We’re talking about anything from cars and houses to engagement rings and huge wedding ceremonies.
The truth is, there are plenty of bad places to park your money in the coming year. If you want to avoid watching your dollars dwindle, avoid these investments in the coming year.
1. A new car
New cars aren’t cheap. Kelley Blue Book reported that the average sales price of light vehicles — generally cars, SUVs and mini-vans — hit $33,801 in November. The average price of a new car in November increased $231, a jump of 0.7 percent, from the same month in 2014.
This extra money doesn’t give you a good investment, either. New cars lose value quickly. Edmunds.com reports that a new car loses about 19 percent of its value in the first year that you own it. Even more shocking? It loses 9 percent of its value as soon as you drive it off the car dealer’s lot.
Buy a new car if you want a new car, but don’t buy it as an investment. If you’re worried about depreciation, buy a used car for thousands less.
2. The wrong franchise
If you’re ready to become a small business owner, investing in a franchise can pay off. There are several franchises — Jimmy John’s, Anytime Fitness, Massage Envy and others — that boast a great growth rate.
But there are others that look more like duds. Forbes recently ran its 2015 list of best and worst franchises in which to invest. Some of the worst franchise investments? ERA Real Estate, All Tune and Lube, Curves, Quiznos, Sbbaro and Ponderosa Steakhouse. These franchises, according to Forbes, have high entry costs and low returns.
If you want to invest in a franchise, target one that’s growing rapidly, such as Culver’s, Sport Clips or Wingstop.
3. The biggest home you can afford
It’s tempting when home shopping to go after the most expensive residence you can afford. The problem with this type of investment? It can make you feel poor. The most expensive homes come with the biggest monthly mortgage payments.
The National Association of Realtors reported that the median existing-home sales price stood at $219,000 in October, 5.8 percent higher than the same month one year earlier. The more important figure for you, though, as you invest in a home is 28 percent. Financial pros generally agree that your total monthly mortgage payment — including whatever you pay in taxes and homeowners insurance — should not equal more than 28 percent of your gross monthly income.
Investing in a home that pushes you past this percentage? That’s a bad investment.