If It Seems Too Good to be True…

Greetings! 

Hope you’ve all had a great weekend. Each week, I will highlight one central idea for you to think through on your own. The goal, as always, is to break down the complex and make it as digestible as possible. 

This Week: If It Seems Too Good to be True… 

I know. 

I know that when something screams, “Hey! You can make incredibly quick and above average returns by investing in this RIGHT NOW!”…it’s really difficult for us to ignore the nonsense and remember that when we’re looking to invest, we’re STRIVING towards average. If we can capture the general market returns while minimizing our transaction costs, our management fees, our tax liabilities, etc., then we are doing as well as any retail investor can truly hope to do over the long haul. 

And even though we know this theoretically, it doesn’t stop us from getting involved in, or at least intrigued by, some of these incredibly high risk/high reward “opportunities”. In the past few weeks alone, several of you have asked me to “vet” some of the marketing literature behind these investment products that are “guaranteeing” 10-20% returns. Well, I don’t need to read them to tell you that no, they’re not guaranteed, and no, they’re usually not a good idea unless you’re simply tired of traveling to Vegas to gamble away your net worth. 

Remember, if it seems too good to be true, I promise, it is. You don’t get above average returns unless you take on above average risk, and the biggest red flag of all is anybody, ever, “guaranteeing” you anything in finance, unless we’re talking about a T-Bill return, and even that return can be challenged based on taxes, rate cuts, etc. 

The only guarantee in investing is that there is no guarantee. 

Action Item: Read this article from this week’s WSJ. It tells you of Richard Whitacre, and many like him, who fell victim to one of these high risk/high “reward” investments and is now paying for it, unfortunately, with his entire retirement savings. 

Stay alert, and let’s just agree that to be average is to be exceptional. 

Tyler