Friday, March 29, 2024

LOUISE FAIRSAVE: Investment warning signs

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A KEY ASPECT of sustaining and building wealth is the investment element. Particularly in an inflationary environment, unless money saved can be invested to earn in excess of the inflation rate, one’s wealth is being eroded. Then, making bad investments decisions can result in significant losses in wealth or even ultimately in bankruptcy.

Today’s article points out four warning signs of likely bad investments:

1. Undertaking to deliver high returns with little or no risks.

Be cautious of any offer to deliver long-term high returns with little or no risks. Where such investments exist, they would more likely be gobbled up by institutional investors like pension funds and mutual funds. For example, when you see the real estate investment programmes advertised on TV or on the Internet to mass audiences, if they were such great investment deals, the providers would not be seeking a mass of “small fries” like you. Rather, the providers would more efficiently have made focused presentations to the big investors.

2. Complex documents or language.

Where the commitment to the investment is wrapped into a complex form or document, be very wary about affixing your signature. Similarly, where there is small print that is not easily understood or worse yet, part of the document is in a complex or foreign language, be warned. How much do you understand about derivatives and investment trusts, for example?

The rule to follow is that any written agreement which you are considering entering into must be fully understood and agreeable before you commit your signature. If you believe you will not be able to explain the deal to your spouse, or even a teenage child, then seek professional advice, if it is worth it, or just walk away.

3. Short time to decide.

A great example of this is telemarketing. Unless you got up that morning with a plan to buy the item or to make the deal offered, just avoid committing to any investment being offered by a telemarketer. Give yourself more time to think through what is on offer.

This rule is very helpful in being resolute in refusing to buy into timeshare opportunities based on an on-the-spot, 90-minute presentation. Did you arrive at the presentation with the goal of investing US$12 000 in annual deluxe vacations? I surely bet not.

Whenever you are being pushed into any deal that will not be available the next day, week or month, remember this warning. Other valid investment opportunities abound. Do not race into making investment decisions that you may regret. Bear in mind that the best of investment opportunities on the face of it always involve some element of the risk of loss. 

4. There is no free lunch.

It remains perennially true that there is no such thing as a free lunch. Underlying that freeness is usually some expectation of a return in value or more. Free webinars, seminars and presentations tend to fall into the same category. Typically, the provider of the free service or goods has some expectation that an alliance will be built or that the receiver will return the value in some way – for example, promoting or buying a related product or service.

Ultimately, other people are not out there trying to identify ways to build your wealth. That remains your responsibility. Bearing these warnings in mind will allow you to hold firm in your investing decision-making. You will reduce the exposure to being duped. Even if you do ultimately experience a bad investment, you can rest assured that you had given thorough consideration beforehand; you did you best in evaluating the risks up front.

• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.

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