Too Good to Be True

Mack Courter |

“How would you like to double your portfolio value in the next 12 months... and then... do it again every year thereafter?”

So began an email I received yesterday.  It went on to tell me I needed to sign up for their newsletter. 

We all see ads that play on our greed by promising great returns.  We see the ones that play on our fears and announce the death of the dollar, or the stock market, or who knows what else. 

Hopefully, you disregard them.  Being a financial planner, ads like these really bother me.  On a good day, I roll my eyes.  On a bad day, I grit my teeth (don't tell my dentist).     

Here are 3 reasons why acting on ads like these will part you from your money.

1.  It’s unrealistic.  If you invest $50,000 and it doubles every year, you will have $51 million in 10 years and $1.6 billion in 15 years.  You’ll be on the Forbes 400 list of richest Americans.  If you developed a system that can do this, do you think you’d be wasting your time selling a newsletter for a hundred bucks a year?

2.  It doesn’t make sense. If you created a system that had this potential, why would you give away your secret recipe?  Soon, a lot of people would be using it, and it would lose effectiveness. 

3.  Investment Newsletters have NO accountability.  As a financial advisor, I’m regulated by the Commonwealth of Pennsylvania.  There are many rules regarding how I report performance.  Most importantly, I have to disclose my losers as well as my winners.  Newsletters on the other hand, have no such restraints.  Everything they write falls under their first amendment rights of freedom of the press.  I often see newsletters (even legitimate ones) proudly tout their winners, while conveniently omitting their losers.

How do you know if an investment ad is to be avoided?  My quick rule of thumb is to compare it to Warren Buffett.  Buffett, arguably the best investor of all time, has earned an average annual return of around 20% on his investments over his career. 

Anything a lot more than that, is probably too good to be true.