Skip to main content

Household Finances Three red flags that signal an investment is not what it seems

Red danger flag.

Photos.com

I recently got a tweet from someone I'd never heard of telling me about his "great success" with an investment. The next day, another tweet came, claiming he's "loving all this new money!" I should click the link immediately, he urged.

Was that random stranger really a benevolent investor who wanted me to get rich quick? Probably not.

Bob Stammers, director of Investor Education at the CFA Institute, says when someone contacts you online promising investment returns that seem too good to be true, beware. It's the first red flag that an investment is not what it seems.

Story continues below advertisement

Another obvious warning sign is the urgency of the appeal, Mr. Stammers said in an interview. People who use high-pressure tactics to push you into an investment do not have your best interests in mind.

A third red flag is what Mr. Stammers calls the "illusion of consensus," a common tactic used in Ponzi schemes, where insiders write reviews about how they've benefited from an investment to convince outsiders to join.

That's not to say all financial advice found online is bad, Mr. Stammers adds. There are reputable agencies that use social media to distribute their research, just as there are bloggers, even anonymous ones, with solid opinions to share.

Some key questions to ask, however, are whether the information comes from someone with the credentials to offer investing advice, whether they have a motive or agenda for promoting certain investments, and whether their investment style fits your financial needs, Mr. Stammers says.

"The skill is parsing out what's valuable and what's noise," he says, adding that even reputable mutual fund companies and big banks need to be questioned. "You need to be wary, you need to have some common sense and you need to understand the agenda and the background of the people who are giving you the information."

So how do you protect yourself? The key is to be educated about investing, question what you read, do your own fact-checking, and find out as much as you can about where the advice is coming from. When in doubt, he adds, get a second opinion from a reputable financial adviser you trust.

"If you get a financial education, if you question what you read, and you get a second opinion, you can parse out what's valuable information and what's there to try to steer you toward buying."

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter