You can never know with 100% confidence what will happen with your investments, but you can control your risk. Before you sign an investment contract, consider these five red flags that may alert you that you shouldn’t sign or that you should seek the advice of a lawyer:
- It’s a dream come true…or sold to you that way.
The old adage “If it’s too good to be true, it probably is,” has never been more apt than when it comes to investments. Yes, everyone wants to find the next Apple or Amazon, and yes, the volatility of the market and investments is very much rooted in how optimistic people are about an investment. However, even Apple and Amazon weren’t always what they are today, and it takes some experience and a bit of luck to find a diamond in the rough like Apple or Amazon—an innovative company that will grow to be a giant. Thus, if someone tells you that you they’ve found that diamond, be skeptical.
Investments are not the answer to your prayers if you’re financially stressed, and no single investment is going to make a tycoon out of you. The more a dream come true an investment sounds, the more you should assume that it’s just a pipe dream.
- Your broker came to you.
If you don’t actually know the person calling or contacting you to ask for your money, don’t give it to them. If you just met this person socially, or through a friend, and they try to sell you on an investment, don’t bite. Generally, honest brokers don’t target individuals they don’t know, whose risk tolerance and financial needs they don’t know, to get them to invest. Now, it is possible that someone you meet through your social networks does have a legitimate investment, but they’re not likely to just come out of the blue and offer it to you. Usually, you go to the broker or the brokerage firm. Still, even if you get correspondence from a broker or brokerage firm, it’s not going to be a hard sell on a specific investment, so if you get one, hang up. Don’t worry – they have thick skins.
- How high are those returns, and how fast?
The only person getting rich on get rich quick schemes is the person selling the scheme. Wealth is rarely built overnight, and most investments that promise high returns are long-term investments. Hedge funds may make short-term, high-risk investments, but are usually not open to newbie investors. Thus, if an investment promises very high returns (more than 10% in less than six months or less than a year), it very likely is a scam. Investor beware.
- You gotta bite right now, not a second to lose!
If your broker doesn’t want you to waste time reading the contract, deliberating on whether to invest, or tries to discourage you from talking to your spouse or partner about the investment, don’t sign. We may feel that it’s rude to sit down and read an entire contract while the other party waits, but no matter what you say to the broker, you will be held to whatever is in the contract you signed (with exceptions below), regardless of whether you read the contract.
Scams work by preying on people’s base emotions: fear, lust, greed, pride, and excitement. Keeping you in a heightened emotional state keeps you from using your rational mind to question what you’re doing, and one of the easiest ways to keep someone in a heightened emotional state is to rush them to the sale or the signature. You have an absolute right to read what you sign, and if someone can’t wait for you to know what you’re signing, don’t sign. Even in a global economy, most investments don’t wildly fluctuate from one hour, one day, even one week to the next. You have time. Use it to read the contract, and, if necessary, to seek the advice of an investment lawyer.
- So new the ink is still drying.
How hot is this investment? Is it so hot that so few people know about it? Is it so hot that it’s practically a secret? Is it so hot that the ink is still drying on that company’s articles of incorporation? While fortunes are made by getting in on the ground floor, remember that the company or investment that really takes off astronomically is a diamond in the rough, but a diamond still takes a lot of time to become a diamond. An investment that hasn’t proven itself and doesn’t give you any reason to think it’s even ready or even real isn’t a one for investing your money. Is it really a tech start up, or two guys in a basement simply talking about their big ideas for an AI product? Is it really a real estate development with contractors and plans that you can invest in, or is it just your broker talking about a piece of land he thinks would be “kinda cool” for building condos and needs your money to do it? New is good; so new it’s not even fully formed is not so good and very high-risk.
So you signed anyway. Can you recover your losses?
Lawyers like Fishman Haygood specialize in protecting investors from unlawful or bad investment agreements. If you think you’re stuck in an unlawful contract, or you have lost money because of a bad broker, Fishman Haygood may be able to help you..