Investing 101: Too Good to be True

“I have an exciting investment opportunity for you. But you have to act fast….”

Maybe you’ve heard this line before. If anyone has ever offered you a lucrative investment opportunity, and then pressured you to jump on board immediately, I hope that you did act fast — by quickly changing the channel, or by turning around and running the other way.

The world of investing can be an enticing place, full of risk, reward, and the promise that you can become wealthy without doing much work. The idea of making a windfall off of a savvy investment is mighty attractive to many people. And although sound investments offer great ways to build wealth over time, quick and risky investments will almost always leave you high and dry. When you begin to build your personal investment strategy, it’s important to steer clear of investment “opportunities” that seem too good to be true.

I’m a big fan of investing — when done the right way, investments are the best way to build wealth over time. In this series, we’ve discussed a number of traditional investment vehicles, such as stocks, bonds, mutual funds and real estate. All of those options can be important components of an investment strategy. You may even encounter the occasional opportunity to make a private investment in a strong small business. But beyond these tried and true methods of investing for the future, the waters of the investment world get very dangerous.

To put it simply, there are a lot of people out there that prey on the ambitions of unsuspecting investors. You’ll find them on late-night TV, in your local barber shop and all over the internet. Some of these guys may be asking for investments in a legitimate company, but promising way too much in return. Others are outright crooks who will take your money and run, never to be heard from again.

As you put together your personal investment strategy, there’s once key principle that you should remember above all else: Slow and steady is the only safe way to go. Proverbs 13:11 explains why:

Dishonest money dwindles away,
but whoever gathers money little by little makes it grow.

Sometimes people experience windfalls or unexpected blessings, and that’s great for them. But the only surefire way to grow wealth, according to this scripture, is to gather it “little by little.” You can’t build a successful financial future on the hopes of striking it rich off of one good investment, and you can’t expect to build wealth without working hard for it. When someone promises us quick gain, they’re not being realistic with us — they’re just appealing to our greed. And greed is not a sound financial strategy.

So, how do we evaluate investment opportunities to see if they’re too good to be true? Well, if we know that the only sure way to grow wealth is to do it slowly, we should avoid any plan or scheme that promises to make us rich quickly. You should walk away if:

  • Someone offers you an “exclusive” opportunity that isn’t available to others.
  • An investment offer is time-sensitive. “This opportunity is only available today!”
  • Someone offering you an investment doesn’t have any of their own money invested in the same company.
  • Someone promises unrealistic returns. The very best mutual funds average 12% per year. Anything more than that is probably not going to happen.
  • An investment scheme involves complex strategies, accounting tricks or exotic instruments. Follow Warren Buffet’s time-tested rule and only invest in things that you understand.

Investing can help turn a desperate financial future into a blessed, peaceful and prosperous one. But if you pass up traditional investment wisdom and go down a riskier road, you’re likely to lose that future along with all of the money that you invest. So stick with the principle that we found in Proverbs: Gather your money little by little, and see how it grows over time.


Photo by Javier Armas. Used under Creative Commons License.

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