Recognizing the red flags

[Farrell]

Hello-

I'm a new member to the site. I happened across Early Retirement.org the other day when a friend who frequently invests in my real estate company asked my opinion on a company that was guaranteeing 18% returns, an obvious red flag. As I searched the entity making the claims I came across a thread from this site where most all the contributors to the subject were right on point- as a return that high is unlikely sustainable and certainly can't be guaranteed. I am proud of the fact that I have over the last 25 years produced well above average returns that are collateralized by real estate in the economically sound central Iowa market. It was encouraging to come across a site where the members recognize the difference between realistic and unrealistic claims. Which leads me to the question-what besides pie in the sky returns coupled with implying a guarantee throws your radar up? I always scrutinize the core collateral and durability of an asset. Glad to be a member- thanks!

 

[MichaelB]

Hello-

Which leads me to the question-what besides pie in the sky returns coupled with implying a guarantee throws your radar up? I always scrutinize the core collateral and durability of an asset. Glad to be a member- thanks!

My radar goes up when people talk about decades of above average investment performance and then offer to help me.

 

[braumeister]

My radar goes up when people talk about decades of above average investment performance and then offer to help me.

I might take it even a step farther and say just the offer to help me is enough to make my spidey sense tingle.

If they're so good at investing and financial management, why do they need my business? Sounds like the old distinction between something you buy and something you're sold.

 

[ls99]

I might take it even a step farther and say just the offer to help me is enough to make my spidey sense tingle.

If they're so good at investing and financial management, why do they need my business? Sounds like the old distinction between something you buy and something you're sold.

Agree. A few weeks ago got a congratulatory letter from some outfit, complimenting me on my sizeable assets. And offered to manage it for me.

The fine parchment paper the stuff was written on was useful for starting a fire in my camp stove.

 

[target2019]

Biggest red flag I personally can recall was the time I met an advisor at local restaurant. It was a fine meal at his company's expense. Later I looked up his name, and found that he once owned the local adult video store.

 

[copyright1997reloaded]

My radar goes up when people talk about decades of above average investment performance and then offer to help me.

Yep. Better to keep that kind of performance a secret lest others ruin the game.

 

[REWahoo]

My radar goes up when people talk about decades of above average investment performance and then offer to help me.

Surely (can I call you that?) all those years as a mod haven't tainted your objectivity when it comes to too-good-to-be-true investment opportunities?

 

[jazz4cash]

A pitch or presentation using what I consider “trigger words” that are intended to evoke an emotional response vs a rational one:
Wall Street casino
Crash
Crisis
Always
Never
Free
etc

 

[Dtail]

Biggest red flag I personally can recall was the time I met an advisor at local restaurant. It was a fine meal at his company's expense. Later I looked up his name, and found that he once owned the local adult video store.

Sounds like more investment porno.

 

[OldShooter]

Any complex product was designed to make money for the seller, not for you.

If you don't understand an investment, don't buy it.

Anyone who can actually achieve consistent above-average returns will not be offering this skill to retail investors for a pittance. He/she will be on a private tropical island drinking from a glass garnished with an orchid and stopping by the computer once in a while when the checkbook gets low.

KISS

 

[Senator]

Biggest red flag I personally can recall was the time I met an advisor at local restaurant. It was a fine meal at his company's expense. Later I looked up his name, and found that he once owned the local adult video store.

And it was probably one of the most profitable businesses in town.

 

[target2019]

And it was probably one of the most profitable businesses in town.

Not by a long shot. Dingy strip mall with no customers. A real blight on the upscale neighborhood. Fortunately for him he was able to get into more profitable porn business.
Still trying to understand his coming to dinner with stains on shirt.

 

[pb4uski]

Not by a long shot. Dingy strip mall with no customers. A real blight on the upscale neighborhood. Fortunately for him he was able to get into more profitable porn business.
Still trying to understand his coming to dinner with stains on shirt.

What kind of stains?

 

[Backpacker]

Been telling my kids for years, "Never say always or never ". Just tried it out on my 5 year old grandson and about a minute later he started laughing and said I get it grandpa. There's hope for that kid!

A pitch or presentation using what I consider “trigger words” that are intended to evoke an emotional response vs a rational one:
Wall Street casino
Crash
Crisis
Always
Never
Free
etc

 

[Jollyquick]

Whenever a thirty something financial advisor offers their advice...

 

[gauss]

Biggest red flag I personally can recall was the time I met an advisor at local restaurant. It was a fine meal at his company's expense. Later I looked up his name, and found that he once owned the local adult video store.

Gotta hand it to those Financial Advisors. They may not be great at detailed mathematics/analysis, but they sure are experts in the human behavior department.

-gauss

 

[Dtail]

Been telling my kids for years, "Never say always or never ". Just tried it out on my 5 year old grandson and about a minute later he started laughing and said I get it grandpa. There's hope for that kid!

Funny, I tell that to the DGF when arguing on occasion.

 

[LRDave]

I think I just recognized one.......

 

[CaptTom]

OK, I think the "free dinner" thing has been mentioned...

So expanding a bit, how about the words "introductory offer?" Sometimes it's in the headline, but often hidden in the smaller print. At any rate, it's rarely worth the effort to cancel whatever it is they're peddling when the introductory period is over.

Next, anything that comes unsolicited in a thick, expensive-looking package containing glossy printed material. It must be some racket if they can afford to send those out!

Finally, anything at all from my cable company. Which usually represent both of the above red flags.

 

[Midpack]

The adage that captures most of the good suggestions above, ‘if it sounds too good to be true, it probably is...’

Don’t invest in things you don’t understand. And why would someone with a sure fire outperforming investment be looking to make measly commissions on your money, if the investment itself pays so well? I’d keep that info to myself, and enjoy the proceeds. Once everyone knows about the great idea, returns will revert to mean if it’s a legal investment.

 

[Dalmore]

"If you sign up today, we will give you an additional X% discount."

Uh, there's the door, don't let it hit you on the way out.

 

[Aerides]

Anything mentioning guaranteed returns (unless it's a CD)
Anything saying "now, no one can truly guarantee returns, but...." - (+bs bs bs)
Anything quoting returns over 10% (despite the "past results are not indicative of future..blah blah)

Or really any sales pitch at all.

 

[Souschef]

DW was sold an annuity after her husband died to "protect her assets from creditors" BS!
When it came time ti roll it over, she was offered a 9% bonus if she went with a certain plan. It turns out it had higher fees than the one she was in, and at year 3 she would be in the hole. I gave the spreadsheet to the salesman, and he just shook his head, as he had never done that,
I had a broker try to talk me into a QLAC to minimize my RMD. I looked into it and found that if I was lucky, I would get my principal back at age 85.
Another broker tried to get me into a fund with a front end load. Not going to happen!

 

[Bestwifeever]

My radar goes up when people talk about decades of above average investment performance and then offer to help me.

Yeah, 25 years is the minimum I'll accept!

 

[COcheesehead]

If its free, you're the product.

Would you buy X without the incentive?

When someone you haven't talked to in years, reaches out to you for just a "coffee."