There are endless opportunities to invest, but it’s easy to get blinded by dreams of payoff, when the real focus should be on the risk that comes between you and your passive income.
Some investments look irresistible on the surface and come with a hyped promise of big returns. However, financial advisors say the investments with the biggest risks often aren’t obvious until it’s too late.
Financial advisors share the investments they warn clients to avoid.
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1. Influencer-Promoted Investments and Speculative Assets
Social media has made investing feel more accessible, but many of these investments are “are by far the most dangerous threats to clients online,” according to Iván Marchena, senior economist at Just2Trade.
These opportunities often center on speculative or small-cap assets. Because of the lack of regulatory oversight for promoting cryptocurrency investing on social media, many of these promotions are commonly known as “rug pulls,” he said, “where those who create the crypto asset own a significant portion of its circulation and dump their holdings once the price peaks, causing a crash that leaves investors facing heavy losses.”
2. Complex Products That Promise Protection
Many investments are sold as solutions to a specific fear, such as market losses, income uncertainty or volatility, but can introduce new layers of risk, according to Julian B. Morris, CFP and founder of Concierge Wealth Management. He pointed to structured products and certain annuities as examples.
“They often look appealing because of the promise of downside protection or income, but what happens is they introduce complexity, liquidity constraints and tax inefficiencies that people don’t fully understand,” he said. He cautioned against investments that require contracts spanning a hundred pages or more.
James Hargrave, a CFP and founder of Pillar Financial Planning, flagged similar concerns with products like buffer exchange traded funds (ETFs) and indexed universal life insurance.
“For buffer ETFs, people often underestimate both the cost and the timing risk,” he said, noting that outcomes depend heavily on when you invest and exit.
3. Leveraged and High-Risk Strategies
Some investments aren’t inherently bad but are frequently misunderstood, according to Hargrave. He cautioned against leveraged ETFs in particular.
“They are designed for short-term use. Over longer periods, volatility and daily resets can lead to outcomes that do not match the underlying index,” he said.
These tools require active management and precise timing, making them unsuitable for most long-term investors.
4. Chasing Income but Ignoring Risks
Income-yielding investments can be especially appealing, particularly for retirees, but focusing only on yield can backfire, Morris said.
Things like high-yield bonds, dividend-heavy strategies and private income deals “can lead to taking on more risk than intended or ignoring tax consequences,” he said.
Income should support a broader plan, not replace it, he stressed.
5. Concentrated Positions
Even strong-performing investments can become risky when they dominate a portfolio. Morris frequently sees this with company stock, which makes a portfolio overly concentrated.
Sometimes it’s a matter of emotional attachment to a company or stock.
“People know it’s a risk but they don’t do anything because selling it feels like something that they’re giving up on,” he said.
6. Investments That Don’t Fit a Plan
Across all these categories, Morris said, “The common thread here is complexity without coordination.”
He encouraged investors to ask better questions before committing, “The better way to evaluate risk isn’t asking, ‘Is this a good investment?’ It’s asking, ‘How does this fit with everything else I own? What is the problem this is actually solving? What are the trade-offs I am accepting? And lastly, what happens if I’m wrong?’”
When those answers aren’t clear, that’s often the clearest red flag of all.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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