Investing Tips: What To Do Before You Invest

I can’t tell you how many times I have taken a call from a disgruntled consumer who got stuck in an unwanted investment and wanted to know how to get out. Unfortunately, in the majority of these cases the damage was already done, and the only choice left was to pay a hefty penalty.

A timeshare is one example of an investment that is tough to exit. Once you are in it, you are responsible for the financing costs and annual maintenance fees. If you suddenly decide that you can no longer afford it, or you simply want out, the only options are to sell it back to the timeshare company (good luck!) or find a willing buyer.

Another potentially frustrating investment is putting your money into an annuity or an investment grade life insurance. Both vehicles will lock you in for several years with no chance of getting out without taking a hit in penalties.

Here is what I suggest before you buy into any investment:

Have a plan. One of the biggest mistakes I see people make is shopping for financial products without a having plan — one that shows you how a particular financial strategy fits your situation and meets your goals. If you don’t have a plan first, you’re begging for trouble later.

Ask questions. I find that many people lack a basic understanding of how an investment program works and how to get out of it. The above mentioned investments are not necessarily bad investment vehicles, but they can be huge mistakes if you’re uninformed.

Watch for warning signs. Here are investments that you should stay away from — period. Beware of investments that are:

1) Exclusive — Only a select few will get this deal. Often a celebrity is used to add legitimacy to the investment. The status of celebrity is a draw, but I suggest you stick to plain, old vanilla investments. A simple investment may be boring, but it’s usually more stable in the long run.

2) Ultimate — If a promoter suggests they have the ultimate investment with unbelievable returns, don’t believe them. Ask questions. How do they plan to achieve those returns in today’s market environment?

3) Vague — Beware of investment strategies where the fees are not transparent. Insist on fully understanding how the investment works. What are the fees? What are the penalties to get out of the investment? Does the cost justify the benefit?

Common sense should tell you that if you don’t fully understand how to get in and out of the investment, you should stay out. There will always be bad apples out there who prey on unsuspecting buyers, but now you’re informed. Don’t jump first and figure out the investment
later.

Denisa Tova MBA, CFP, CFDP(TM), ChFC, CLU provides divorce financial expertise to divorcing individuals. She is a Certified Financial Planner(TM) practitioner and Certified Divorce Financial Analyst. You can find more information about Denisa Tova at: http://www.denisatova.com
Reprinted with permission of The Colorado Springs Gazette