Warning Signs an Investment’s Too Good to Be True
If someone offers you guaranteed fabulous returns with absolutely no risk, that's a dead giveaway. However, other shady signs are tougher to spot.
Over the last few years, the broad markets have generally been on an upswing, which is great news for those planning for their retirements, business investments, education funding, philanthropic aims, charitable contributions and estate transfers. A major goal of investing is to build wealth, and many investments are based on knowledge and trust, so their merit and viability may not be questioned until they turn. But by then, it may be too late.
As you read news stories about once-respected companies engaging in dubious business practices, you should carefully review your own accounts for these warning signs:
1. Claims of high investment returns with little or no risk.
Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be extremely suspicious of any “guaranteed” investment opportunity, and look at the worst returns along with the best and the averages.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. Overly consistent returns.
Investment returns tend to go up and down over time, especially instruments seeking to always beat the market. Be wary of an investment that continues to generate regular, positive returns regardless of overall market conditions. If you are invested in a higher-yielding instrument, especially one that has a foreign domicile, then also be aware of the tax and filing consequences that may apply.
3. Secretive and/or complex strategies.
Avoid investments that you don’t understand or for which you can’t get complete information. Review the risks and fees involved.
4. Issues with paperwork.
Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Account statement errors may be a sign that funds aren’t being invested as promised. Also, you may be a victim of what was previously unthinkable: an unscrupulous business practice in which accounts are opened in your name without your authorization.
5. Difficulty receiving payments.
Be suspicious if you don’t receive a payment or have difficulty cashing out your investment, especially if you have been told differently. Keep in mind that Ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.
If you begin to worry that your investments are showing signs of suspicion or even fraud, then it is imperative that you bring your concerns to a professional who can help you determine the proper steps, which may involve higher authorities. If you feel that an unscrupulous broker or financial planner has misled you, then you may have to contact that person’s branch or complex manager to lodge a formal, written complaint. You may have to take claims to binding arbitration.
If there is evidence of fraud, especially among multiple investors, then you could collectively contact the U.S. Attorney’s Office and/or the state securities regulator where you live or where the suspected crime originates.
Any suspicion of financial crime or commodities, investment, securities, mail or telemarketing fraud should be reported to one of more of the following:
- The Federal Bureau of Investigation (FBI) at 202-324-3000 or online at https://tips.fbi.gov
- The Securities and Exchange Commission (SEC) at 800-732-0330 or online at www.sec.gov/complaint.shtml, and/or
- The Commodity Futures Trading Commission (CFTC) at 866-366-2382 or online at www.cftc.gov/TipOrComplaint.
- The Federal Trade Commission (FTC) at 877-382-4357 or online at https://www.ftccomplaintassistant.gov/information?OrgCode=#crnt
- The Department of Justice (DOJ). This website can help you locate your U.S. Attorney: https://www.justice.gov/usao/find-your-united-states-attorney
The government takes financial crimes very seriously but can only act when alerted.
-
Samsung Galaxy S25 Ultra for $4.99 a Month: A Closer Look at Verizon’s DealVerizon’s aggressive pricing makes Samsung’s top-tier phone tempting, but the real cost depends on your plan and how long you stay.
-
I'm 59 with $1.7 million saved and lost my job. Should I retire?We asked professional wealth planners for advice.
-
4 Times to Say Yes to a Roth Conversion and 4 Times to Say NoRoth conversions should never be done on a whim — they're a product of careful timing and long-term tax considerations. So how can you tell whether to go ahead?
-
A Wealth Adviser Explains: 4 Times I'd Give the Green Light for a Roth Conversion (and 4 Times I'd Say It's a No-Go)
Roth conversions should never be done on a whim — they're a product of careful timing and long-term tax considerations. So how can you tell whether to go ahead?
-
A 4-Step Anxiety-Reducing Retirement Road Map, From a Financial AdviserThis helpful process covers everything from assessing your current finances and risks to implementing and managing your personalized retirement income plan.
-
The $183,000 RMD Shock: Why Roth Conversions in Your 70s Can Be RiskyConverting retirement funds to a Roth is a smart strategy for many, but the older you are, the less time you have to recover the tax bite from the conversion.
-
A Financial Pro Breaks Retirement Planning Into 5 Manageable PiecesThis retirement plan focuses on five key areas — income generation, tax management, asset withdrawals, planning for big expenses and health care, and legacy.
-
4 Financial To-Dos to Finish 2025 Strong and Start 2026 on Solid GroundDon't overlook these important year-end check-ins. Missed opportunities and avoidable mistakes could end up costing you if you're not paying attention.
-
Are You Putting Yourself Last? The Cost Could Be Your Retirement SecurityIf you're part of the sandwich generation, it's critical that you don't let the needs of your aging parents come at the expense of your future.
-
I'm an Insurance Pro: It's Time to Prepare for Natural Disasters Like They Could Happen to YouYou can no longer have the mindset that "that won't happen here." Because it absolutely could. As we head into 2026, consider making a disaster plan.
-
The Future of Philanthropy Is Female: How Women Will Lead a New Era in Charitable GivingWomen will soon be in charge of trillions in charitable capital, through divorce, inheritance and their own investments. Here's how to use your share for good.
