Any Investment Pitched as a Sure Thing
Want to find a legitimate investment? Look for evidence that the company or the fund has had a bad year.
Bernard Madoff claimed that his fund showed returns of 10 to 12 percent a year, every year. In hindsight, experts say those figures should have been the first sign of trouble for those who lost millions of dollars in the high-profile Ponzi scheme.
If you don't see any bad years in the sales information for the investment, check how far the returns outstrip returns on the stock market. If they consistently outperform the market, think twice.
Pitches for these types of investment opportunities often appear when the stock market is faltering; salesmen look for investors who are wary of losses in the stock market, and they show numbers to build confidence.
The expert view on why investment fraud succeeds is that the sales pitches for these investments play on people's fear or greed. Watch for pitches that stir those emotions. If you start feeling scared or greedy, step back and wait to commit your cash.
Read on for links to more information about investing.
Related HowStuffWorks Articles
- Apostolou, Barbara, and Nicholas G. Apostolou. "Keys to Investing in Common Stocks." Barron's Educational Series, Inc. 2004.
- Connelly, Eileen A.J. "View Timeshares as a travel aid, not an investment." Aug. 30, 2009. (Oct. 18, 2010) http://www.buffalonews.com/business/article10116.ece
- Consumer Federation of America and Primerica. "Typical American Household has assets of less than $1,000." Oct. 28, 1999. (Oct. 18, 2010) http://www.consumerfed.org/pdfs/primerica2.pdf
- Fisher, Ken, and Lara Hoffmans. "How to Smell a Rat: The Five Signs of Financial Fraud." John Wiley & Sons, Inc. 2009.
- Grable, John. Professor of Personal Finance, Kansas State University. Personal interview. Oct. 15, 2010.
- Heingartner, Douglas. "Despite Grabbing Headlines, Art Prices Don't Appreciate Well." International Herald Tribune. Oct. 29, 2009. (Oct. 18, 2010) http://www.nytimes.com/2009/10/29/business/global/29iht-nwart.html
- Swedroe, Larry E., and Jared Kizer. "The Only Guide to Alternative Investments You'll Ever Need: The Good, The Flawed, The Bad and the Ugly. The Way Smart Money Diversifies Risk." Bloomberg Press. 2008.
- Tyson, Eric. "Investing for Dummies." Wiley Publishing, Inc. 2008.
- Tyson, Eric. "Personal Finance for Dummies." Wiley Publishing, Inc. 2006.
- Tyson, Eric. Personal interview. Oct. 19, 2010.
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