It’s said that hindsight is always 20–20. But, with many flashy investment opportunities, foresight can be 20–20 too. Unless you’re a gambler or have extra money to burn, advisors and investors should heed simple principles when deciding where to invest savings and retirement funds.
- An oldie but goodie: If it sounds too good to be true, it is. Don’t shoot for unrealistic returns. Aim for slow and steady returns that have small peaks and valleys, but over time increase.
- FOMO is not a sound investment strategy. This is a slight variation of #1, but it bears repeating in a slightly different way: fear of missing out is not a viable plan to increase your savings or retirement funds. Just because your favorite D-list celebrity or trendy Tik Tok influencer is hyping something doesn’t mean you should invest your hard-earned money.
- Do some actual diligence. Spend some time researching your potential investment and look for obvious warning signs. Is there too much buzz? Do the company’s auditors and advisors only exist in the metaverse? Who is—and, more importantly, isn’t—putting their money behind the new vehicle? Does the company appear to have established itself outside the reach of regulatory agencies and law enforcement? Are there written materials available describing what the company does in simple, understandable terms? Are trusted news sources and analysts covering the company? Who are the company’s skeptics, and are they worth listening to?
- Don’t put all your eggs in one basket. Think of this last rule as your backup parachute. If you overlooked tips 1 through 3, following this rule will hopefully keep your losses to a minimum.
When all else fails, make sure viable options exist to recoup money lost due to fraud, whether that’s arbitration, SEC disgorgement actions that result in a Fair Funds recovery, or private litigation.