7 Signs of Slowdown on a Great Investment Opportunity
6. You buy it based on an advertisement
Whether advertising on television, radio, print media or the Internet, be particularly careful. If a company spends a lot of money to solicit you, it is ultimately you who pays if you buy. Better investments usually go quickly and don’t need to pay to advertise. Be especially wary of infomercials on television, radio, or Internet podcasts. They are like talk shows claiming their purpose is to educate you. Many retirement financial shows are actually paid infomercials. There may be a very brief disclosure that the company showcasing its products paid for the spot; it may be very brief because they hope you miss it. As expected, these ads usually appeal to emotions.
7. It Feels Good
Although I tell people that investing should be boring if you do it right, sometimes it should be painful. What it should never be is something that feels good. Ignoring any of the above warning signs and putting your money back feels good to begin with. Exiting stocks in a bear market to stop future losses is also nice, even if, logically, it sells after a dip – another investment mistake. Rebalancing your portfolio in a bear market means buying more stocks. Yes, it’s excruciatingly painful, but logically it’s about buying stocks on sale.
How to protect yourself
First, when considering an investment, don’t spend your money immediately. I suspect this limited time offer will still be here in a few days. List the things that can go wrong and what impact it would have on your family. Ask yourself how the person and company offering you the investment makes money and why this may also be of interest to you.
Do an internet search on the product or company and see what others are saying. I often tell people to go to the Bogleheads online forum and use the search box to see what other people think. These searches only take a few minutes, and it’s time very well spent.
Go see someone you respect but who doesn’t always agree with you. It could be a spouse, friend, or co-worker, but not someone who would benefit financially if you buy something from them instead. You want someone as unbiased as possible. Ask them what they think about it and if they would make the gesture if they were in a situation similar to yours.
Investing is simple, but never easy. Although there are occasional exceptions, if something seems too good to be true, it probably is.
Allan Roth is a practicing financial planner who has taught finance and behavioral finance at three universities and has written for national publications including The Wall Street Journal. Despite his numerous diplomas (CFP, CPA, MBA), he remains confident that he can continue to invest simply.