When it comes to investing, the name of the game is called “Risk” and there’s not one investment that’s a guaranteed success… Even the most financially sound good investments have the potential to go south given events or situations that fall outside your realm of control. However, certain investments carry flashing warning signs that you just can’t ignore. It’s not always easy to determine the best place to invest your money but a great way to get your start in investing is by weeding out the bad investments.
Take a look at some of the biggest investment red flags to help you reduce your likelihood of experiencing financial devastation from bad investments.
Warning Signs to Look Out For to Help You Avoid Bad Investments
It Sounds to Good to Be True
You know what they say… “If it sounds too good to be true, it usually is.” When an investment opportunity comes your way and it’s pitched to you as a no-risk, guaranteed investment opportunity, it should automatically wave a red flag for you because all investments carry risk. So when someone tries to pitch an investment to you as though their investment doesn’t come with risks, it’s more than likely a scam.
According to the US Securities Exchange Commission, these scam artists will use fake testimonials, get rich quick schemes, a fake sense of urgency, and several other tactics to rob novice investors of their money.
Everyone is Investing in It
As your parents used to say, “If everyone else jumped off of a bridge, would you do it too?” This is just proof that just because everyone else is doing it, that doesn’t mean you have to do it. If someone invests in an opportunity that just sounds absurd to you, you don’t have to invest to get your piece of the pie too. In fact, an ex-banker divulged details on how corrupt the investment industry is and stated that investment banking is the perfect job for psychopaths.
The ex-banker obviously had his reasons for making such a statement, and it’s all the more reason to do your own research on every investment opportunity that comes your way or that you find interest in. Why? Because there are people out there who wake up every morning with the intent of scamming people. Just because everyone else is doing it, it doesn’t mean you have to join the bandwagon.
The Risk is Too High For Your Tolerance
As you know, all investments come with risk, but the level and severity of the risks are what differentiates high risks from low risks. If you’re someone with a substantial amount of wealth, you might feel comfortable enough in your financial standing to take on the higher risk investments because “the higher the risk, the greater the reward.” But if you’re not at a level of wanting to take on such a high risk, you would want to look into investment opportunities that are a bit safer.
Real estate investing is an area of investing that many people are having great success in. investing in long-term rental properties can provide you with a steady and “reliable” source of passive income in monthly rent payments. Now, where it gets a little riskier is in investing in short-term vacation rentals.
Short-term vacation rentals allow you to charge a rate per night, which in turn has a greater potential of increasing your monthly cash flow than long-term rental properties, but it all depends on your risk tolerance. Whether you choose to finance a short-term vacation rental or a long-term rental, both have been great investment opportunities for many. You just have to assess if it will be a great one for you.
The Investment is Too Complicated to Fully Understand
If an investment is too complicated for you to explain, it’s a warning sign for you to look into other investment opportunities. This is apparent when the person trying to get you to invest can explain the opportunity to make you understand it but when you try to explain it, something just doesn’t click… This is a sign of a play on words that businesses do to smooth talk their way into acquiring funding.
Now, true enough, there are some investment opportunities that are more detailed and intricate than others but if the basic concept is too complicated, it’s definitely not a good investment.