Red Flags investors must avoid

Red flags are traditionally used to signal danger. There are many red flags waving in front of us in our everyday life that we often ignore. This can be detrimental to our health and wealth such as when we feel unwell physically and ignore the signs of illness (red flags) to our peril, instead ending up at the doctor’s office where we are told to make significant lifestyle changes because if we do not, we may get gravely ill or die. Today we are looking at the red flags of investing.

Too good to be true

If you are introduced to an investment that says minimal risk and hefty returns in a short timeframe and it sounds too good to be true, it just might be that- too good to true. Lately I have noticed an increased demand from my clients who are risk averse enquiring about higher interest rates. This is because they are facing the rising cost of living and get wooed by investment offerings that have substantial risk and are inappropriate for their risk profile and time horizon. High returns are associated with considerable risk, and this is an indication (red flag) that the investment must be thoroughly researched before you participate. Any investment that promises substantial returns in a brief period should make one wary. Always conduct detailed due diligence to assess the viability of a potential investment.

Being forced into an investment

Persistence to the point of being stalked by a Financial Advisor to “sell” you an investment product is a major red flag waving right before your eyes. If you feel that your advisor is being too pushy and forceful, and you sense they are not considering your risk profile it may mean that they are not making their monthly quota for the month.

Companies that are in trouble will try and convince you to invest your money way before you figure out why. They push instruments that are extremely risky and are nowhere close to your time horizon and risk tolerance. Often, it is a strategy to offload declining assets on their books.

Do not allow your financial adviser, or anyone for that matter, to rush you to invest in products.

Lack of information

Investing your money is a serious decision and you should be clear and have full information regarding the investment you are about to enter in.

Be careful of investments that are advertised with most of the relevant information but excluding key points such as the yield on the instrument and any associated fees or costs. Remember the coupon rate and the yield are not the same thing. The investment could look great on the surface but how much you will earn and at what cost are key factors to consider.

Do not invest in products that are not fully explained to you. If you feel uncomfortable and you believe that after asking the prerequisite questions you are still unsure, go over the process until you understand. Never sign without fully reading the fine print and make sure you understand the pros and cons of the investment.

Keep an eye out for red flags. Be aware, be patient and proceed with caution. Happy investing from Sterling!

Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm

Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm