This was the headline that I received in an email from a company soliciting investor money. It was a real estate investment. What are the two biggest risks to a real estate investment? The big two are credit risk and default risk. They went onto say that there was no credit risk or default risk. No risk? 15-18% returns? Tell me where I can sign up…for an unrealistic offer with maximum risk!
I hear and read stories all of the time where someone invests their money into an investment fund and looses it all to fraud. The red flags are easy to spot. The guarantees of high returns with no risk are the main red flags of any scam.
There is a guaranteed rate that you can get through any bank or insurance company. Today, that rate is between 3.5% and 3.75%. This is a rate in today’s interest environment that a company can give you guaranteed and still make money. The company has to be able to guarantee that rate without creating risk on their own books.
Then you have these types of investments.
There are two thoughts in regards to the above headline. First, you are almost doing the same thing as guaranteeing the return by saying you can get these rates of returns without risk. It is implying the word guarantee. Just making the claim that it is a possibility is just as bad. Second, all you have to do is know the guaranteed rate of return. The further the advertised growth rate is above that guaranteed return the more risk you are taking. Third, EVERYTHING has risk. If the investment promoter doesn’t acknowledge that fact, can you really trust them?
I have no way of knowing that the company that is advertising these rates of “no risk, high return” is running a scam. I do know that almost every scam makes this claim. However, I will pose one question.
Why would you trust a company that advertises this irresponsibly?
Either 1 of 3 scenarios are taking place. First, they are in fact running a scam. Second, they are willing to say anything and break rules to get you to invest by making unrealistic claims. Finally (and the least likely scenario) - they have discovered the “can’t miss, no risk, high return” investment – the only one in the country.
Responsible companies don’t market in a way that creates any question. Responsible companies are careful how they present themselves as to create no misunderstandings.
You only want to invest with responsible companies.