The Investments That Look Exciting But Will Keep You Poor
Why Boring Beats Exciting Every Time
By special request, this post is dedicated to a reader in the State of Oklahoma. You know who you are. May you never get rich quickly.
I get it. Index funds are boring. You buy the same three funds every month, watch your balance slowly grow, and never have exciting stories to tell at parties. It's not exactly thrilling.
Meanwhile, your coworker is bragging about their 300% gains on some cryptocurrency you've never heard of. Your neighbor is day trading during lunch breaks. Your friend's uncle made a fortune on penny stocks and claims to be the next Roaring Kitty. Everyone seems to be getting rich except you with your "boring" index funds.
Here's the truth: exciting investments are exciting because they're usually terrible.
The financial industry has figured out that people don't want to buy boring, profitable investments. They want to buy dreams, get-rich-quick schemes, and products that make them feel smart. So, the industry creates complicated, high-fee, poor-performing products and markets them as "sophisticated" or "cutting-edge."
Today we're going to examine the investments that look exciting but will derail your path to financial independence. I'll explain why each one fails, what makes them appealing, and why you should stick with boring investments that actually work.
I’ll also note which ones I have personal experience with and if I’m planning a future deep dive on the topic.
The Framework: How to Evaluate Any Investment
Before we dive into specific bad investments, let's establish how to evaluate whether something belongs in your FI portfolio:
1. Does it produce cash flow or grow earnings over time? Stocks represent ownership in companies that create products, employ people, and generate profits. Real estate generates rental income. Bonds pay interest. Good investments produce money.
2. Can you explain how it makes money in simple terms? If you need a 47-slide PowerPoint presentation to explain why an investment is good, it probably isn't. The best investments are boringly simple.
3. What are the total fees? High fees compound against you. A 2% annual fee doesn't sound like much, but over 30 years it can cost you 40% of your returns.
4. Is someone trying really hard to sell it to you? The best investments don't need aggressive sales tactics. No one needs to convince you that owning profitable companies is a good idea.
5. Does it require constant attention and trading? Wealth building should be boring and automatic. If an investment requires you to watch charts all day, it's not investing, it's a job.
Now let's look at the investments that fail these tests.
Pure Speculation: Gambling Masquerading as Investing
Cryptocurrency
Let’s start with the big one because it’s popular right now and early adopters have made millions.
The pitch: "Bitcoin is the future of money!" "I heard Ethereum went up 1000%!" "Get in before it's too late!" "Digital gold!"
Why people fall for it: FOMO (fear of missing out) is a powerful drug. Everyone has a story about someone who bought Bitcoin at $100 and became a millionaire. The technology sounds revolutionary. The gains can be spectacular.
The reality: Cryptocurrency produces no cash flow, creates no products, employs no people, and generates no earnings. Its value depends entirely on what the next person is willing to pay…which happens to be the definition of speculation!
Bitcoin has crashed 70%+ multiple times. (2011, 2013, 2017, and 2021) Most altcoins go to zero. The "technology" argument doesn't explain why any specific cryptocurrency should be worth anything. For every person who became rich on crypto, there are hundreds who lost money.
The math problem: Even if Bitcoin reaches $1 million per coin, that doesn't help you build wealth consistently. You can't dollar-cost average into something that might lose 90% of its value next year. You can't plan retirement around an asset that swings 50% in a week.
The FI killer: Crypto takes mental energy and emotional bandwidth away from boring wealth building. Instead of automatically investing in index funds, people obsess over charts, follow crypto X accounts, and make emotional decisions with their money.
Day Trading
The pitch: "Be your own boss!" "Make money from anywhere!" "I made $500 today in 30 minutes!" "Just need to learn the patterns!"
Why it's appealing: The promise of quick money and freedom is intoxicating. Social media is full of people showing off their trading gains (never their losses). It feels like you're taking control of your financial destiny.
The reality: Studies consistently show that 80-90% of day traders lose money. The few who make money often make less per hour than minimum wage when you account for the time invested. Transaction costs eat profits. Taxes on short-term gains are brutal.
The hidden costs: Day trading isn't just about money. It's about time and stress. Successful traders spend 8-12 hours a day watching screens. They're constantly stressed about positions. They can't take vacations without checking their phones.
The truth: Day trading isn't investing. It's gambling with better marketing. You're not building wealth; you're trying to predict random short-term price movements. Even if you are one of the 10% that make money, it’s still a job, not a passive investment.
Forex Trading
The pitch: "Trade currencies 24/7!" "Massive leverage means bigger profits!" "The largest market in the world!"
The problems: Currency movements are largely unpredictable in the short term. The leverage that promises big profits also guarantees big losses. Most retail forex traders lose money consistently.
The reality check: If you can't predict whether the dollar will be stronger or weaker against the euro next month, you probably shouldn't bet money on it.
Penny Stocks
The fantasy: "Get in early on the next Amazon!" "Turn $1,000 into $100,000!" "High risk, high reward!"
The reality: Most penny stocks are penny stocks for a reason. The companies are failing. The success stories you hear about are survivorship bias. For every penny stock that goes up 1000%, there are hundreds that go to zero.
The scams: Penny stocks are prime targets for pump-and-dump schemes. You're not investing in the next Amazon; you're buying shares that someone else is trying to dump.
"Sophisticated" Gambling: The Smart-Sounding Bad Ideas
Individual Stock Picking
The pitch: "I can beat the market!" "Warren Buffett picks stocks!" "This company is obviously going to dominate!" "I do my research!"
Why it feels smart: Picking individual stocks makes you feel like an active participant in your wealth building. You can point to companies you "own" and feel sophisticated talking about earnings reports and competitive advantages.
The math problem: Studies show that 90%+ of professional fund managers can't beat the market consistently. These are people with teams of analysts, Bloomberg terminals, and decades of experience. What makes you think you can do better?
The behavioral traps: Individual stock picking leads to overconfidence, confirmation bias, and emotional decision making. You fall in love with your picks and hold losers too long. You panic and sell winners too early.
The concentration risk: When you own 10-20 individual stocks, you're taking huge concentration risk. If one of your big positions goes down 50%, it devastates your portfolio. Index funds own thousands of companies, so individual failures don't matter.
The time sink: Proper stock analysis takes enormous amounts of time. You need to read annual reports, understand competitive dynamics, analyze financial statements, and stay current on industry trends. Most people don't have the time or expertise to do this well.
Note: I have invested in individual stocks and will post separately about my experience.
Options Trading
The pitch: "Limited risk!" "Generate income from stocks you own!" "Hedge your portfolio!" "Small investment, big returns!"
Why it sounds sophisticated: Options strategies have complex names like "iron condors" and "butterfly spreads." There are YouTube channels dedicated to options education. It feels like you're learning advanced investing techniques.
The reality: About 90% of options expire worthless. Options are extremely time-sensitive, so you can be right about the direction of a stock but lose money because your timing was off. The strategies are complex, and most people don't understand what they're actually doing.
The psychological trap: People focus on the potential 500% gain and ignore the 90% probability of total loss. It feels like investing but it's actually gambling with a timer.
The truth: Options were designed for institutional investors to hedge risk, not for retail investors to speculate. If you're using options to "generate income," you're taking on risks you probably don't understand.
Note: I briefly invested in options and will probably post something short about what I learned.
False Safety: The Risky Investments Disguised as Safe
Junk Bonds (High-Yield Corporate Bonds)
The pitch: "Higher yields than Treasury bonds!" "8-12% returns with less risk than stocks!" "Fixed income with better returns!"
Why it sounds safe: They're called "bonds," which people associate with safety. The yields are attractive. Fund companies market them as "high-yield" rather than "junk."
The reality: Junk bonds are junk for a reason. There's a real risk the companies won't pay you back. When markets crash, junk bonds often crash alongside stocks, giving you none of the safety you thought you were buying.
The math: You're getting paid more because it's riskier, not because it's a better deal. If you want safety, buy Treasury bonds. If you want growth, buy index funds. Junk bonds give you neither when you need them most.
Peer-to-Peer Lending
The pitch: "Cut out the banks!" "8-12% returns!" "Help people while making money!" "Diversify across hundreds of loans!"
What went wrong: Default rates were higher than advertised. There was no secondary market liquidity. Platform risk was real. (LendingClub shut down retail investing.) Tax treatment was unfavorable (ordinary income, not capital gains).
The 2020 lesson: When the economy hiccupped, people learned they were taking credit risk without bank-level underwriting expertise. The promised diversification didn't help when everything defaulted at once.
The truth: When something promises stock-like returns with bond-like safety, it's usually lying about one of those things.
Expensive/Complex Products: The Fee Extraction Machines
Whole Life Insurance as Investment
The pitch: "Tax-free growth!" "Forced savings!" "Protection plus investment!" "You can borrow against it!"
The problems: High fees eat returns. Complex and opaque fee structures. Lower returns than the market. Mixing insurance with investing rarely works well. Surrender charges lock you in.
The better approach: Buy term life insurance for protection and invest the difference in index funds. You'll come out way ahead and have more flexibility.
Timeshares
The sales pitch: "Own a piece of paradise!" "Guaranteed vacation spot!" "Real estate investment!" “They aren’t making any more land in Hawaii!”
The reality: Horrible resale value (often worth $0). Ongoing maintenance fees increase every year. Limited flexibility. High-pressure sales tactics. This isn't real estate investing. It's prepaying for expensive vacations.
Variable Annuities
The pitch: "Tax-deferred growth!" "Guaranteed income for life!" "Market upside with downside protection!" "Professional money management!"
The reality: Extremely high fees (often 2-4% annually). Complex fee structures you can't understand. Surrender charges lock you in for years. Tax disadvantages (ordinary income vs. capital gains).
The sales tactic: Insurance salespeople push these hard because commissions can be 7-10%. They'll show you fancy charts about "guaranteed minimums" while glossing over the fees.
The test: If someone recommends a variable annuity, ask them to explain exactly how much you'll pay in fees annually. If they can't give you a clear number (and they usually can't), run.
Note: A financial advisor sold my mother an annuity in 2010 and to this day I can’t explain exactly how it works. The documentation is over 200 pages of legalese and even the insurance company’s own advisors can’t coherently explain the product. To make matters worse, it somehow lost value between 2010 and 2023. At a time when the stock market went up 4x, the annuity fees were so high that all of those gains and more were wiped out.
Unproductive Assets: The Shiny Objects That Don't Work
Gold and Precious Metals
The pitch: "Hedge against inflation!" "Store of value for thousands of years!" "When everything crashes, gold holds value!" "Real money!"
The problems: No dividends or growth. Storage and insurance costs. Fear-based investing. Opportunity cost vs. productive assets.
The math: It is possible for gold to outperform stocks for periods of time. Many “gold bugs” will show a chart where gold outperforms by setting the starting date to 2000 or 2008 at a stock market peak. (see here) However, if you use a fair timeframe and include dividends, stocks have returned ~30,000% since 1975 while gold has returned ~2,300%. It’s not even close.
The emotional appeal: Gold appeals to people who fear economic collapse. The problem as I see it is if society collapses, you don't want gold. You want food, water, and ammunition. If society doesn't collapse, you want to own productive assets.
Raw Land as Investment
The pitch: "They're not making any more land!" "Buy land, it's the one thing they can't manufacture!" "Hold it for 20 years and get rich!"
Why it sounds logical: Land seems tangible and permanent. Population grows but land supply is fixed. It feels like a safe store of value.
The problems: Raw land produces no income. You pay property taxes every year with no cash flow to offset them. There are carrying costs (insurance, maintenance, legal fees). You need to find a buyer willing to pay more than you did.
The reality: Most raw land doesn't appreciate much beyond inflation. The land that makes people rich is usually developed land (with buildings that produce income) or land in the path of development (which requires insider knowledge or incredible luck).
The opportunity cost: Money tied up in raw land for 20 years could have been invested in productive assets that pay dividends and grow earnings.
Collectibles (Art, Wine, Cards, etc.)
The pitch: "My baseball card collection doubled in value!" "Fine art always appreciates!" "Vintage wine is liquid gold!" "Classic cars are investments!"
Why it's appealing: You get to enjoy your "investment" while it hopefully appreciates. There are amazing success stories. It feels more interesting than stocks.
The problems:
No income generation
High transaction costs (auctions, dealers, authentication)
Storage and insurance costs
Illiquid markets (hard to sell quickly)
Requires expertise to avoid fakes/overpriced items
Subject to fashion and trends
The math: For every comic book that sold for $1 million, there are thousands gathering dust in basements. The success stories get all the attention, but most collectibles don't beat inflation.
The expertise problem: Unlike stocks where you can buy the entire market, collectibles require deep knowledge of specific markets. You're competing with experts and dealers who know more than you do.
The Common Themes: Why These Investments Fail
Looking at all these failed investment approaches, several patterns emerge:
1. They promise easy money: If an investment promises quick, easy returns with little risk, it's probably lying.
2. They require active management: Wealth building should be boring and automatic. If you need to constantly monitor and trade, it's not a good long-term strategy.
3. They appeal to emotions: Fear, greed, FOMO, and the desire to feel smart all lead to poor investment decisions.
4. They have high fees: The financial industry creates complex products to justify high fees. Simple investments have low fees.
5. They're aggressively marketed: The best investments don't need salespeople. No one needs to convince you that owning profitable companies is a good idea.
The Opportunity Cost: What You're Missing
Every dollar you put into speculative investments or high-fee products is a dollar not invested in boring, wealth-building assets.
Example: $10,000 invested in Gamestop in 2021 at the peak would be worth about $2,853 today. That same $10,000 invested in an S&P 500 index fund would be worth about $17,183 plus dividends.
But the real opportunity cost is bigger than that. It's the mental energy spent following Gamestop prices and memes instead of optimizing your savings rate. It's the time spent researching cryptocurrencies instead of automating your investments. It's the stress of day trading instead of the peace of mind that comes with a simple, effective strategy.
What Actually Works: The Boring Path to Wealth
After eliminating all these exciting but wealth-destroying investments, what's left?
For most people pursuing FI:
Low-cost index funds (US total market, international, bonds)
Rental real estate (if you want to be a landlord)
Your primary residence (sometimes renting might be cheaper)
Tax-advantaged accounts (401k, IRA, HSA)
That's it. Three or four asset classes, ideally tax-advantaged. No complexity. No excitement. No stories to tell at parties.
Why this works:
Low fees
Broad diversification
No emotional decision making
Automatic wealth building
Proven over decades
The 5% Rule: Can't I Just Gamble a Little?
"But Max, can't I just put 5% in crypto/individual stocks/options? What's the harm?"
The harm isn't the 5%. The harm is the mindset. When you start speculating with "fun money," you're training your brain to think about investing as gambling. You start checking prices obsessively. You get excited about gains and depressed about losses. You spend mental energy on speculation instead of optimization.
Plus, if your speculation works, you'll be tempted to put more money in. If it fails, you might lose confidence in investing altogether.
The 5% rule sounds reasonable, but it often becomes a gateway drug to more speculation. I know from experience! I told myself that the 5% was actually part of my entertainment budget, so losses would just be spending. Suddenly it was a 10% position because I doubled my money. “Hey, maybe Max is really good at this!” You can see where this goes.
My Personal Experience
I've tried some of these bad investments, so I'm not lecturing from ignorance.
Individual stocks: I bought only individual stocks for three years using Motley Fool recommendations. I under-performed the market by picking "sure winners" that lost money. I also paid a monthly fee for the bad advice. I later moved to a super-concentrated portfolio of 10 stocks from 2014-2017. I outperformed the market, but lost sleeping devouring every bit of financial news from my holdings. 15% swings in my net worth caused me to start grinding my teeth as I worried about the next earnings call. I’ll post about that wild ride in more detail in the future.
Options: I dabbled buying call and put options on single stocks for about 90 days. They all expired worthless except for one. In a stroke of blind luck, one of my companies was acquired by a competitor and the call option soared into my largest gain ever (at the time). It struck me that I was buying lottery tickets, and I haven’t bought or sold an option since. I’ll have more to say on this topic later.
Metals: I bought silver in 2011 at $40/ounce because everyone told me that inflation was coming because of the Federal Reserve’s quantitative easing following the 2008 crisis. It’s 2025 and silver prices are still below $40/ounce. Worse, my 2011 dollars were much more valuable than 2025 dollars because of the inflation since. On a percentage basis, this was the worst “investment” I ever made.
The lesson: Every dollar and every hour I spent on these speculative investments delayed my path to FI. The exciting investments were exciting precisely because they were unpredictable and risky. I was paying for volatility because volatility is exciting. Know where else people go to pay for volatility? Casinos. (Oddly, most people normally pay to avoid volatility, which is why the insurance industry exists.)
How the Financial Industry Profits from Your Excitement
Understanding why these bad investments exist helps you avoid them.
The problem with boring investments: Index funds are so simple and effective that they can't justify high fees. How do you charge 2% annually for buying the entire stock market?
The solution: Create complex products that sound sophisticated, require "expertise" to manage, and justify high fees. Make investing feel like you need professionals to do it right.
The marketing machine: The financial industry spends billions convincing you that investing is complex, that you need active management, that there are secrets only professionals know.
The truth: Investing is boringly simple. Buy low-cost index funds. Hold them forever. The end.
Red Flags: How to Spot the Next Bad Investment Idea
When evaluating any new investment opportunity, watch for these warning signs:
1. Promises of high returns with low risk: This doesn't exist. Risk and return are related.
2. Complex strategies that are hard to explain: If you can't explain it simply, you don't understand it well enough to invest in it.
3. Requires constant attention: Good investments work while you sleep.
4. Aggressive sales tactics: "Limited time offer!" "Get in before it's too late!" Good investments don't need urgency.
5. Appeals to emotions: Fear of missing out, greed, fear of economic collapse. All lead to poor decisions.
6. High fees or commissions: Someone is getting rich, and it's not you.
7. Lack of transparency: If you can't easily find out exactly what you're buying and what it costs, avoid it.
Common Questions About Avoiding Bad Investments
Q: But what if I miss out on the next big thing?
A: You'll also miss out on the next big bust. For every Amazon, there were dozens of dot-com companies that went to zero. You can't predict which new investment will succeed, but you can predict that broad market index funds will capture whatever success does happen.
Q: Don't I need to diversify beyond index funds?
A: Index funds ARE diversification. A total stock market index fund owns pieces of thousands of companies across all sectors. That's more diversified than any individual could achieve through stock picking.
Q: What about inflation protection?
A: Stocks are the best long-term inflation protection because companies can raise prices. Their earnings grow with inflation. Real estate also works because rents can be raised. Gold doesn't work because it doesn't produce anything.
Q: Should I avoid ALL individual stocks?
A: If you work for a publicly traded company, owning some of your company's stock through an employee stock purchase plan can make sense (with limits). If your company offers a 10% discount on its stock if purchased with your paycheck, that probably makes sense. If you're an expert in a particular industry, owning a few individual stocks as a small portion of your portfolio might be reasonable. But 90%+ of your portfolio should be in diversified index funds.
The Bottom Line
Exciting investments are exciting because they're unpredictable and risky. Boring investments are boring because they work consistently over time.
The financial industry has figured out that people don't want to buy boring, profitable investments. They want to buy dreams. So the industry creates complicated, high-fee, poor-performing products and markets them as sophisticated or cutting-edge.
The key insight: In investing, boring beats exciting every single time.
Your goal isn't to have exciting stories about your investments. Your goal is to build wealth consistently and predictably so you can achieve financial independence.
Stick with low-cost index funds. Automate your investing. Ignore the noise. Let compound interest do the work.
The most exciting thing about boring investing is achieving FI years ahead of people who chased exciting investments.
Next time, we'll talk about the psychological money traps and why smart people make dumb financial decisions.
Until then, your homework: If you're invested in any of the bad investments covered in this post, make a plan to exit them and move the money to index funds. Your future self will thank you for choosing boring over exciting.
Here's to getting rich slowly and predictably,
Max
Remember: The best investment story is the most boring one. "I bought index funds every month for 20 years and became financially independent." That story doesn't get you attention at parties, but it gets you freedom.