In this low-interest environment, ready cash is floating around to be deployed. Banks are giving a paltry 0.lousy% and the economy is not looking too good with problems in Europe, China and US. Alternative investments like land banking and wine are promoted rampantly nowadays. Recently, many investors who invested in a gold scheme were duped. How can investors protect themselves from squandering their money away?
Firstly, always research into the product you are investing in. Is it regulated by any governing body? How does the investment make you money? What are the exit strategies and is the investment liquid? Get everything in writing before investing your hard-earned cash. Many investors of alternative investments have tried to sell their investments but end up being unable to. It was reported in the Sunday Times yesterday of a wine investment that went sour. The investor in his 30s invested about $6,000 in investment-grade wines in 2009. The broker offered a minimum of 10% profit per annum. However, his gilt-edged investment turned bad and when the investor tried to sell his wine in 2011, emails to the firm went unanswered. They even asked him to buy more. His paper loss stands at more than 60%.
Secondly, if the product guarantees returns, such as 24% per annum (p.a.), it probably is too good to be true. No investment returns are guaranteed. Guaranteed 24% p.a. is better than stock market returns, without any effort. The returns are much better than Warren’s Buffett’s 19% annual returns from 1976-2011. Think about it.
Thirdly, if the sales manager encourages you to go into debt or pull equity from your homes, it is a major red flag. If the investment fails, you will hard time to finance the debt and this can derail your retirement plans, putting you into emotional turmoil.
Therefore, before investing, always do due diligence. Educate yourself on how to invest properly. Greed is not good. Sometimes, putting money in the bank is much safer than investing in such products that give “guaranteed returns”. If you are keen to educate yourself on proper investing, you can look into value investing, which is the Warren Buffett way of investing.