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Pro Tips: Red Flags to Look for in an “Investment”

High-earning business people are often the target of investment products and “opportunities”. A common disadvantage most people have is they and those close to them do not have a strong financial understanding and, therefore, don’t know what to consider when investing. This write-up should be helpful in clearing the air. The red flags are as follows:

  1. Offers made by someone who hasn’t looked at your entire financial picture.

Have they recommended anything without looking at your assets, liabilities, income, expenses, and goals? They either don’t know what they are doing or they don’t actually care about helping you find the right investment solutions; both are BIG red flags.

  1. Investing a large percentage of your assets in a single company.

A rule of thumb that many savvy investors follow is to not allow more than 10% of their investable assets to be invested in a single company. If an investor has 25% of their assets invested in a single company and that company fails, that investor just lost 25% of their money in one mistake. This concept is known as business risk and financial risk and it can be avoided with a diversified portfolio.

  1. Loaded mutual funds/investments, annual AUM fees over 1.25%, and high expense ratios

In today’s investing world, no-load mutual funds/investments are easily accessible and just as good as their loaded counterparts. I personally know of financial advisory firms who offer comprehensive financial planning and portfolio management for an annual fee of 1.25% of AUM or lower. Expense ratios depend on the type of fund, but if there are similar funds with lower expense ratios, there is no reason to pay more for the same thing.

  1. Investment products where the “advisor” or salesman makes a large commission

They aren’t all bad (investment products and salesmen), but we believe a diversified portfolio of no-load/no-commission mutual funds and ETFs can outperform most of them after fees/commissions.

  1. Investments that are “hard to explain”

Investing isn’t that complicated: you buy shares of a company or a bundle of companies and when their value goes up, so does your share of them. If someone can’t/won’t explain to you what they are selling or it seems very complex, you probably shouldn’t put money into it.

When in doubt, run it by those close to you whom you trust and have your best interests at heart.

Thank you for reading! Feel free to contact us if you have any questions. If you are considering an investment, we would love to get to know your situation and give you a 2nd opinion.

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