In life, we all hope to make good decisions the majority of the time. We try to rationally think through our actions to determine the best course of action. But sometimes it’s easier to get swept off course than one may realize. However, the one place you want to try to prevent that is with your finances. And one of the easiest lessons to learn is that if it sounds too good to be true, it probably is. But then things come up. You might think, “I am not going to make it.” When people think they’re not going to make their financial goals, they tend to make poor financial choices. They make decisions like, “I’m not one of the chosen ones, so I might as well just spend it and enjoy life.” Or they might decide, “I’m not getting enough return. My uncle knows this really great guy who guarantees a 50 percent rate of return per year. So if I really goose up my rate of return, maybe I can take on more risk and make up the time that I’ve lost.” Folks, if it seems too good to believe, it probably is. People who throw common sense to the wind and take inordinate risks lose money. If you just give compounding a chance, you will make it.
And unfortunately, it can happen more frequently than you may think. Sometimes it’s a legitimate mistake: faulty analysis, too emotional of an investment, bad timing, etc. happened to us all. We invest money with the best intentions only to discover, in hindsight, we made a huge mistake. Sometimes the mistake is legitimate- our analysis was faulty, we let our emotions get the better of us, or we just had bad luck in timing. It stings. Other times, people get hoodwinked by investing in fraudulent deals or taking the chance on something that seems “too good.”
But how does one determine what “too good” looks like. Thankfully, there are some warning signs. There’s the “get rich quick” approach, which has people paying off financial fears and insecurities. These usually promise abnormally high returns in short periods of time. A recent report from JPMorgan states investors should not expect to receive more than 7% annual return in US equity markets over the long run (defined as over the next 10-15 years)This is a good benchmark to determine if someone is trying to take advantage of you.
For more tips on making good investments, visit tswealth.com.