Have you noticed that lately when you shop for something on Amazon, that item has a habit of popping up on other websites? It’s as if Amazon has worked out a way of saying, “Oh hi, did you forget to buy this? Well, you can now. Just click.” In some instances, that might be helpful. It also is a clear demonstration of how the internet has a way of “following” what you’re up to.
What does this have to do with investing? As you start doing research into investments — as you should — you might begin to see all kinds of “invitations” popping up on web pages, email, Facebook and other social media accounts. You’re ready to make money, so these might be a good way to start. Before you dive in, you’ll want to consider these red flag warning signs about investing.
- High Return, No Risk
High return? Possible. No risk? Not likely. That makes for a nice headline to draw you in but has no basis in real investing. You’ll find investing in opportunities like mutual funds will often have three tiers of risk: low, moderate and high. The risk is always there. Anyone who tries to tell you otherwise just isn’t telling you the truth.
Did you hear the story about Apple co-founder Ronald Wayne? He sold his stake in the company back in 1976 for a paltry sum of $800. Had he tucked away those shares and sat on them, they would be worth around $63 billion. You actually might hear this story retold as a sales pitch. You can’t miss a “once-in-a-lifetime” opportunity, right?
Actually, you can. If the opportunity is so great, then the sales agent should be able to back it up with dependable facts and research. Ask for that and see what happens.
- Tax-Free Havens Offshore
Wouldn’t it be great to never pay taxes again? That’s not going to happen, especially with investment capital. A broker might suggest setting up an offshore account to ensure you won’t be paying taxes, but what happens if that investment tanks? Try getting your money back from one of those offshore brokerage firms. It’s not going to be easy. Of course, you won’t have to worry about paying taxes on money that has disappeared.
- Overly Slick Sales Materials
A website for a potential investment might be nicely produced. It will have lots of pictures — stock photos — of smiling people happy with their dividends. It will make bold proclamations about this opportunity. What it won’t have are a lot of tangible facts like providing contact information for the company you’re investing in. Upon closer inspection, you might discover spelling or grammar errors in the copy. Run, don’t walk, away from that “opportunity.”
- Unanswered Questions
When you go to buy a car and set up financing, there is a moment when the salesperson has to take the contract back to their manager to see what can be done. They never let you in on that conversation because they already know what can be done. They want you to pay a hefty finance charge. The same thing can happen with investments. You might ask questions only to get a, “Let me find out and get back to you” response.
There is no question you can ask that shouldn’t have an instant coherent response. If the agent is hemming and hawing, then you should invest elsewhere.
- Ground-Floor Investments
Getting in on the “ground floor” of a company can often be a huge benefit — see the Apple story above. However, there is also a lot of risk with an unproven entity. So many things can go wrong with a business start-up that it’s probably one of the riskiest investments you can make.
If you want to pursue that investment, then ask to speak to direct reps from the company. Don’t take the word of a broker that things are going to “go off the charts.” A company rep who is honest will tell you the challenges ahead. That is someone worth investing in.
All of this boils down to that wise adage, “If it looks too good to be true, then it probably is.” Words to live by.
Anum Yoon loves all things related to personal finance. She founded Current on Currency after realizing there wasn’t a personal finance blog that tailored posts for international students. Current on Currency has since expanded to become a millennial money blog, so follow her on Twitter @anumyoon to check out her updates.
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