Whether or not it’s the FTSE 100 or the FTSE 250, some shares that look engaging at first sight can grow to be actually dangerous investments. Recognising these is essential to investing success.

Heading into 2025, there are a pair that stand out to me from the UK inventory market. And whereas they might end up properly, there’s simply an excessive amount of danger for me to go wherever close to them with my very own cash.

Dividend entice

Vodafone (LSE:VOD) has lowered its dividend this yr, however there’s nonetheless a yield of round 6% on provide. That’s not dangerous, however I believe the unit economics for this enterprise are fairly ugly.

The corporate has round £28.5bn in property, plant, and gear to keep up. And over the past 12 months, it has generated £3.7bn in working revenue utilizing these property. 

That’s not nice and it’s the principle motive I’m seeking to avoid the inventory. Over the long run, I’m cautious that inflation goes to imply the agency struggles to generate a good return on its investments.

Nonetheless, Vodafone acquired a giant increase not too long ago with the Competitors and Markets Authority approving its proposed merger with Three. This would possibly assist enhance the equation for traders sooner or later.

What the corporate wants to enhance its returns is scale. Having the ability to attain extra prospects with its put in base of property ought to assist increase its profitability and the mixed enterprise would possibly obtain this. 

Regardless of this, I’m not taken with shopping for the inventory for my portfolio. Discuss of investing one other £11bn into the UK’s 5g community earlier than returns seem is sufficient to preserve me firmly on the sidelines.

Worth entice

At a price-to-earnings (P/E) ratio of 5, shares in FTSE 250 chemical substances firm Johnson Matthey (LSE:JMAT) look low-cost. However the firm is in a tough place. 

Its largest division is platinum group metals. And the largest use for platinum is catalytic converters, which function in inside combustion engines. 

The group has been battling world automotive gross sales in a cyclical downturn. However the rise of electrical autos – which appears gradual however inevitable – is doubtlessly a much bigger drawback over the long run.

Declining companies aren’t all the time dangerous investments. They’ll generally generate important quantities of money for shareholders as they wind down this shouldn’t be underestimated.

Earlier this yr, Johnson Matthey divested its medical machine parts unit. And along with strengthening its steadiness sheet, it distributed a considerable quantity to traders as dividends.

I’m sceptical of the agency’s means to repeat this sufficient to generate a big return for traders. That’s why I’m staying properly away from the inventory subsequent yr.

Addition by subtraction

Outperforming an index just like the FTSE 100 or the FTSE 250 isn’t simple. However a method of making an attempt to do that is by avoiding the shares which might be prone to do worse over time. 

That’s a part of my technique with each Vodafone and Johnson Matthey. As I see it, there are higher alternatives elsewhere and that’s the place I’ll be focusing my consideration in 2025.