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I recently overheard a conversation between two friends, okay, I’ll admit it, I was eavesdropping. One friend explained that she had made over $80,000 in a matter of months through an obscure digital token on an even more obscure online investing platform. Red flag number one and two, I’ll explain later. Of course, as expected, the other friend’s interest was piqued. She asked what she would need to do to achieve that level of return as well. The friend proceeded to tell her that with a mere $5,000 investment, she could not only double, but quadruple her investment in a matter of two-to-three months — red flag number three.
As these ladies were not my personal friends, nor did I really know them at all, it felt inappropriate to chime in to their conversation. I walked away hoping that the friend did not take her hard-earned $5,000 and invest it into what is very likely a scam. At CFAL, we have a saying: if an investment sounds too good to be true, it usually is.
So, let’s break down these red flags. Even the most secure and stable investment opportunities do not produce outlandish returns in just a few months. Taking a few thousand dollars and turning it into nearly $100,000 over several months is about as realistic as finding a magic money tree. It just doesn’t happen for average investors. Turning $5,000 into $100,000 in one year requires a 1,900 percent return, which is theoretically possible, but highly improbable and extremely risky.
Now, improbable does not mean impossible. Yes, there is a chance for your money to grow that quickly, but it would generally involve highly speculative activities such as cryptocurrency trading or options trading, which are extremely volatile and require an extraordinary level of skill, experience, and risk tolerance. And even in those instances, there is never a guarantee of a return, because in investing, there are no guarantees.
You could also get lucky. You could buy a winning lottery ticket or launch a highly successful business with low startup costs and rapid growth. So yes, it is possible, but the odds are stacked against you.
It is quite easy to fall prey to financial scams that promise big returns. Most people living paycheck to paycheck would run quickly toward any opportunity to make more money, faster. But it’s that urge to get more and more, faster and faster, that often leads to losing more than you ever set out to gain.
When I first entered the working world as a young 20-year-old, fresh out of university, I juggled four jobs at one point and still barely had enough money left over to put gas in my car. One day, as I was driving from one job to the next, I saw a big sign with bold letters that offered “quick money.” My heart started to flutter; it seemed like just the thing I needed to get by. I made a U-turn, pulled into the parking lot of a small strip mall on a busy street in South Florida, and went inside.
I listened carefully as the stocky, middle-aged man explained what I needed to do, as he handed me a single sheet of paper filled with very fine print. They would give me $700 on the spot, as long as I provided all my personal information and agreed to pay back nearly double that amount in one month, after which I would incur astronomically higher interest. In that moment, I had a moment of clarity. The fluttering in my chest stopped, and I realized that if I needed to borrow $700, there was no way I could afford to pay back almost double in just one month.
Although payday loans are not scams, in that they are not illegal, they are extremely high-risk and often predatory in the same way many financial scams are. They take advantage of people when they are most vulnerable.
When bills are due and the basic necessities of life cannot be paid for, desperation sets in. Many of us have been there. But it is in those moments of desperation that it is most important to slow down and think clearly, because quick money almost always comes with long-term consequences.
When it comes to safe and sound investing, there is no get-rich-quick method. Traditional, more stable investments like stocks and bonds typically take years, even decades, to grow. Building wealth is generally achieved through consistent, long-term saving and investing, and by increasing your contributions to your investment accounts over time.
Real wealth is usually built slowly, quietly, and patiently; not in a few months on an obscure platform, but over many years through discipline, consistency, and good decision-making.
Before you invest your money, ask yourself a few simple questions: Do I understand this investment? Is this company or platform regulated? Are the returns being promised realistic? And most importantly, would I still make this investment if there were no guarantee of quick profits?
If you cannot clearly answer those questions, that may be the biggest red flag of all. Because when it comes to your money, it is not just about how much you make it is about how much you keep, and how safely you grow it over time.
