Five Investment Red Flags

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Nobody likes to miss out on a great opportunity – especially when there’s money involved. Imagine how much richer you’d be right now if you’d listened to tech enthusiasts when they told you to buy Bitcoin ten years ago. Bitcoin investments that would have cost you a few dollars at the time are worth thousands of dollars now, and some people have become millionaires because of it. Having missed out on that, you probably don’t want to miss out again. Everyone wants to find the next Bitcoin. Unfortunately, far too many people will try to sell you ‘the next Bitcoin’ when what they’re actually selling is nowhere near as valuable.

Choosing where to put our money is one of the biggest decisions we’ll ever have to make, which is why we should always get professional advice before we sign anything or come to any conclusions. Even then, though, there are ways in which we could fall down. Not all advisers are equal and nor are all investments. For every Facebook, which created one thousand millionaires with its IPO in 2011, there’s a Zynga, which dropped 40% in a single day in 2012 after badly missing its projected earnings.

The most important thing to remember when you’re investing money (other than to listen to your adviser so long as they have the right qualifications and experience) is to trust your gut. Your instincts will rarely be wrong, and if something feels off, it probably is. To help you to feel things out, though, keep an eye out for these red flags.

It’s An “Act Now” Offer

Buying stock isn’t like going to a store and getting a ‘two for one’ offer on a certain day or grabbing something in the sales. If a price is good today and performance is consistent, there’s no reason why it won’t be increasingly attractive tomorrow, and the day after that, and the day after that. You should never face undue pressure to buy into an investment right then and there because something is ‘hot.’ Usually, the pressure to sell is there because the price is a short-term bubble that’s about to burst, leaving you holding onto stock that’s worth less than what you paid for it days earlier. Always insist on at least a week to consider any investment proposal. If it won’t hold for a week, it’s no good for you.

You Don’t Understand What You’re Investing In

Sometimes we can get blinded by figures so much that we forget to ask what it is we’re investing in. Without that knowledge, we’re vulnerable. If we don’t understand what an investment is or what it does, we can’t predict what external factors might affect it. We don’t know when we should expect it to do well and when we should expect it to perform poorly. Make sure you know everything there is to know about a stock or a company before you pump money into it. Even the professionals can sometimes get carried away and make this mistake, as British millionaire investor Deborah Meaden can confirm. When she did it, it cost her half a million pounds. We’re sure you wouldn’t want it to happen to you.

There’s No Exit Strategy

Some advisers will try to tell you that the best investments have to be locked away for months or perhaps even years at a time if you want to get the best possible return on your money. That’s rarely the case, and when it is, it tends to be in exceptional circumstances. Remember that your money is your own and that you’re investing it rather than lending it. There’s always an element of risk involved in investing, but you should still be able to withdraw your funds in a timely manner if the investment is legitimate. There might sometimes be a ‘surrender fee’ if you want to pull your money back out before any agreed contractual period, but you should still be able to do it. If you have no access to your funds at all, ask why and make sure you get a very good answer before you proceed any further.

It’s Extremely Volatile

Markets go up, and markets go down. That’s part and parcel of investing and playing the markets, and everyone involved in them understands that. That doesn’t mean that the value of an investment should jump up and down rapidly from one day to the next. There’s a reason that the volatility of online slots games is clearly marked before people start playing, and the reason is that online slots with high volatility don’t pay out as regularly as those with medium or low volatility. They might sometimes pay out bigger cash sums than those with lower volatility, but on average, you’ll be waiting a long time to get that return, and it will cost you a lot of money to chase it. Investing is sometimes compared to online slots with 10 free spins no deposit, but it should never feel exactly like it. If the price is unstable or varies unpredictably, steer clear. Consider looking at it again at a later date if the value becomes more stable.

It’s Extremely Popular

One of the most common reasons that people decide to invest in a particular stock is that everyone else appears to be doing so. This is especially true when it becomes apparent that Warren Buffett is investing in something. Warren Buffett is one of the most consistently successful stock market investors of all time, but he’s not you. More to the point, he almost certainly has a much higher risk tolerance than you. He can afford to experiment with an investment and lose every dollar he pays for it. You might not have that luxury. Multiple people investing in the same stock at the same time is what leads to price bubbles and that, in turn, leads to crashes. When there’s a rush on a stock, the price becomes artificially inflated and will eventually settle at a lower figure than the one it hit at its peak. If you bought it at its peak, you’ll likely never make your money back on it. Only buy what’s right for you and what makes sense for your circumstances. What everyone else is doing doesn’t matter.

These are easy rules to follow. Make a note of them, pair them with common sense and the counsel of a good adviser, and you hopefully won’t go wrong.

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