“Guaranteed” Returns In Investing?
If you have been keeping abreast of the financial news lately, you probably might have come across an unfortunate news (http://www.straitstimes.com/business/another-crowdfunding-scheme-goes-sour) where a handful of investors in Singapore have reportedly failed to recover their investments, after investing in a scheme which promised up till 24% returns a year.
From time to time, we tend to encounter investment schemes that “guarantee” a certain rate of return (often in the range of 20% per year and above) and have a relatively short exit timeframe (meaning you can recover your principal within a relatively short amount of time). Sounds too good to be true? Very often, it does.
From the infamous Sunshine Empire’s Multi-Level Marketing Investment Scheme to the notorious Suisse International Buyback Scheme (both happened in Singapore), it is puzzling why some people fall prey to these investment schemes, time and time again. In this short article, we uncover the reason why a number of people fall victim to such schemes and a couple of brutal truths about investing.
Why Do Untrained Investors Often Fall For These “To Good To Be True” Schemes?
Very often, untrained investors are enticed by these schemes for the following reasons.
Firstly, these schemes almost always “guarantee” that the investor will make a quick profit. Most of the time, the returns promised by these schemes tend to surpass the returns of more traditional investments like bonds and mutual funds. In the recent investment scheme quoted earlier (http://www.straitstimes.com/business/another-crowdfunding-scheme-goes-sour), investors were promised a payout of 2% per month (or 24% per year) and they were able to recover their principal in 1 year’s time.
Faced with these tempting promises, our emotion of greed often causes us to ignore any potential red flags or prevents us from scrutinising the investment scheme thoroughly.
Secondly, these investment schemes are often portrayed in way that little work or no work is required by the investor to achieve these profits. Very often, the proponents of these investment schemes would claim that they have already done all the ground work and concluded that the investment project has a lot of potential. They are only seeking more capital so that this project will have a “first mover advantage” by expanding as quickly as possible. And the earlier you invest, the more returns you will get… or so they claimed.
A Couple Of Brutal Truths About Investment Success
The truth is, investment success, like all fields, requires due diligence. For example, Warren Buffett, one of the best investors in the world, started practicing investing ever since he was 11 years old. He even offered to work for his mentor, Benjamin Graham, for free so that he was able to learn whatever he could from Benjamin Graham.
Having said that, we are not suggesting that everyone should be as ambitious as Warren. Rather, the point we are trying to drive at is if one desires to achieve investment success, some form of due diligence is unavoidable. And it is possible to achieve a decent rate of return, even if you have a few hours to spare each week (we will share with you how this is possible in our complimentary investment workshop).
In addition, most untrained investors are often uncomfortable with the idea that there are no “guarantees” when it comes to investment. Risk is part and parcel of every kind of investment. Strictly speaking, even ‘safe’ investments such as fixed deposits do come with a certain level of risk (imagine the worst case scenario of what would happen if the bank handling your fixed deposit were to collapse).
However, does this mean that we have to be able to tolerate lots of risk in order to be successful investors? Not necessarily so. In fact, some of the top investors in the world, such as Warren Buffett, are actually quite risk-adverse.
With the right strategy and mind set, it is possible to minimize your risk exposure and place yourself in an advantageous position to secure investment returns.