Never invest everything you’ve got in illiquid investments
According to Daniel Zajac, a certified financial planner at Simone Zajac Wealth Management Group, certain investment products might have long-term benefits but they cannot be easily converted into cash in case of an emergency. “You should be keenly aware of when and how you can get to your money, even more so if you make the decision to put a large portion of your assets in something that restricts access,” he said.
Illiquid investments have lower day-to-day volatility and correlation to the stock market but cannot be sold quickly without a substantial loss in value. Examples include hedge funds, nontraded real estate investment trusts and the like. Read also 15 Life-Changing Personal Finance Tips You Had No Idea About.
Never turn insurance into your only investment
Life insurances are often marketed as retirement savings instruments. In some cases, such as for high-earning business owners and professionals, it might actually be a sustainable way to save for retirement. However, for most people, the traditional plans such as a 401(k), are far more advantageous.
“Insurance as an investment is rarely, if ever, a good idea,” said Zajac. “It’s an especially bad idea for those just getting started. Your focus should be on creating an emergency fund, creating liquidity and contributing to your retirement. Focus on buying term and investing the difference.”
