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In recent years, the world of investments has had very favorable results and we have seen how most investment items have achieved high returns, being able to mention among them: the stock market, real estate, and crypto assets. Reason why in almost all media we see the stories of people who have become million-dollar, thanks to their vision as an investor.
This situation, added to the high inflation that is being experienced in the United States, makes many savers begin to look for ways to optimize their money or rather so that their savings are not eaten by rising prices.
Now, the current moment is especially propitious for people to fall for financial scams when investing their money, so we want to share with you 3 tips that you should always consider before considering an investment
1. Never transfer the money in the name of the investment advisor
It seems so logical that one would wonder: Are there really people who do that? and the best evidence that we can remember was the scam committed by Bernie Madoff which totaled about 65 billion dollars and the investors did just that, almost begging Mr. Madoff to allow them to invest their money for which he they wrote a check or made a transfer to his name from Madoff.
Later they received the high rate of return that they had been offered, although they did not know that this money was covered by the new suckers who wanted to invest with it. This Ponzi scam scheme collapsed when the markets fell and many investors asked for their capital back and that money no longer existed since Madoff was spending it on his tycoon’s life.
So, what should be done: the investment advisor should open an investment account for you in your name, in an institution that has protection or insurance in case the bank or broker-dealer goes bankrupt or has any problem. For example, in the United States, all brokers or brokers have coverage by a company called the Securities Investor Protection Corporation (SIPC) which covers your investments in these cases for up to $500,000.
It is impressive how we see many people who make this mistake and invest their money with people or institutions that are not supervised or regulated by any official or government entity and it happens a lot in the case of so-called Traders or people who are dedicated to buying and selling on the day stocks or crypto assets, pointing out that they are the market gurus and people seeing that these Traders show that they have had certain financial successes, comment on this failure and give them their money so that they can manage it and then it is extremely complex recover the capital, the most serious being not having where to go to complain because they are usually people who do not have licenses to practice this profession.
2.- Very high and guaranteed returns
We all know that the interest rates paid by banks are on the ground and much more now, that with inflation they have become negative, but how is it possible for a person to offer you a guaranteed and continuous way, for example every month or every quarter an interest rate much higher than that of a bank, when the first rule of the world of investments is that the higher the return, the greater the risk, with which no one can offer you that you will earn a fixed amount for your investment.
This is where that little devil of temptation is born that makes many investors think that they have discovered a new opportunity that nobody knows about and since they are so special, they are going to exclusively offer you this “guaranteed” return. When you see someone tell you that they are going to pay you a return no matter what happens, that’s when you should run the other way and not risk losing your money.
Let’s see the following exercise, during the last 100 years, according to Morningstar data, the Standard and Poors index, which brings together the 500 largest companies in the United States, has returned approximately 10% on average each year, but do not go to To think that this was 10% each year read well what we say on average with which some years will have been negative and others positive. So if an investment is placed 100% in shares, which are one of the assets that, although they have yielded the most over time, are also riskier and yielded 10%, how is a person going to come and offer you you will earn much more for sure.
Remember that other warning that is always shown in investments that says “Historical returns are not a guarantee of future returns” or simply put, it is likely that a person achieves very favorable results in a moment but maintaining them over time is totally something else.
3.- The herd effect
This is really one of the most dangerous errors, although it is true since the time of the caves, humans have understood that if you are part of a herd or a herd you will be protected, well this principle applies very well to other types of predators, but not for the predators of the investment world. It is impressive how people invest in something simply because they heard that a friend, family member or neighbor is doing it and there is where that fear of being left out and feeling that we are the only ones who are not taking advantage of this wonderful opportunity or as it would be said in English the FOMO or Fear of Missing Out.
Please, every time you go to invest you must really understand where your money is going to be, and of course the world of investments is complex and many times investors do not take the time to do a little research, but if you see that the financial advisor has no way of explaining or showing you clearly where you are going to put your money, it is better that you do not invest. A very simple test that you can do is to see the name of the assets or investments that they are offering you and review it in Yahoo Finance and if you do not get enough information, again, better run the other way.
In conclusion, we suggest that you always rely on financial advisors who have a license to carry out their functions, as well as ensure that your advisor has some certification that accredits him before third parties in financial matters, such as a certified financial planner or CERTIFIED FINANCIAL PLANNER™.
Founder & CEO Advise Financial
Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.
