Warning Signs of a Risky Investment

Warning Signs of a Risky Investment

In the investment world, there is no such thing as certainty. Even good investments can turn sour, given a dose of bad news or exogenous events. However, some investments carry warning signs that could lead to losses or outright scams.

Ever received an investment opportunity that feels too good to be true? Well, that’s probably because it is! Similarly, not all investments are created equal; there are the good, the bad, and the ugly and the challenge for investors is being able to decide what information can be trusted and what is simply “too good to be true”.

Here are some warning signs to look for:

  1. Limited Investment opportunities

An offer so good there are only limited stocks available for purchase, and you need to invest a considerable sum as a minimum purchase.

If your financial adviser tries to promote stock sales without first understanding your personal goals and financial objectives, this is a big warning sign that the investment proposed is about them making sales rather than you making an investment.

See Also: Ways to Help You Identify Good Investment Opportunities

  1. Incredible Returns

The idea of investment is to try to make good returns, but past performance does not, and cannot, guarantee future success. If it were that straightforward to propose a 40-fold return on investments, then everyone would be doing it. Claims of an unbelievable return, coupled with a ‘buy now before it’s gone’ sales pitch, is begging you to question the investment. Would a responsible adviser put time pressure on your investment?

  1. Celebrity Endorsements

If you’re planning to invest because wealthy Silicon Valley investors have done the same, warning bells should come ringing. Elon Musk and company have invested in some great ventures, but they have also lost millions.

When investing a significant sum in one company rather than a diversified portfolio, you become more exposed to greater risk. Yes, you may reap higher returns, but your investment could also fade. There was an article stating 96% of businesses fail within the first ten years.

  1. Limited Information

Reputable investments have vast amounts of information available about them, and historical data to back up their credibility. On the other hand, Startups or ‘the next big thing’ are more in the cards to be ‘the next big fail’.

If putting your money into these types of extremely high risk ‘investments’ is your thing, you may as well have some fun at the local casino instead as your chances of receiving the returns offered are a high-risk gamble with little prospect of winning.

See Also: How to Invest in Stocks Without Too Much Risk?

  1. Gut Feeling

When it comes down to it, we all have the instinct to figure out how legitimate something sounds, but it’s easy to get swept away with slick sales pitches and the prospect of easy money.

Keep your wits about you, get references, do your research, gather your evidence, and check the credibility of proposed investments. Financial advisers should have your best interests at heart. If it feels like they’re just trying to sell you something you don’t need, walk away.

See Also: Risks in Stock Investment (Part 1)

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