My name is Alexander Dillon, and by 32 years old, I had already founded a variety of successful companies. Blackbridge Capital, a successful investment firm, is one I started just a year out of college. I launched GenCap Management, a new investment firm, in 2021.
Over the years, I’ve seen a lot of telltale signs of great investment opportunities. But I’ve seen a lot of dangerous ones, too – which is why I’ve compiled this list of the five red flags every investor needs to know about to help you avoid them altogether.
1. Making Promises That Can’t Be Kept
In my opinion, perhaps the biggest red flag that every investor needs to know about is also, thankfully, one of the most immediate. If someone promises returns that seem far too high and yields that seem far too lean, it’s easy to think, “this sounds too good to be true.” Trust your instincts because, in the vast majority of all cases, it will be.
Generally speaking, if you begin to see a promise of returns that begin at 50% and only go up from there, at the very least, you know that you’re taking a significant risk. In the worst-case scenario, you’re looking at an out-and-out scam – and it’s one that should be avoided at all costs.
Of course, high returns are possible in certain situations. However, these circumstances are rare given the fact that the mantra of the entire industry is usually “under promise, over deliver.”
2. “Partners” Who Can’t Prove That They’re As Experienced As They Say They Are
This is another red flag that is unfortunately all too common in the world of investing. Someone will claim that they have years of experience under their belt and that they’ve navigated countless successful deals over the years, but when you ask for even a modest bit of proof to back that up, suddenly, they can’t find any documentation to speak of.
A lot of times, these people will try to “wow” potential investors with a flashy prospectus and a lot of impressive-looking charts and graphs that outline how much money everyone is going to make. That’s terrific – but you can make documents like these with the software that comes free on just about any computer that you buy these days.
Anyone who is as experienced and as savvy as they say they are should be able to prove it – period, end of the story. If they can’t, it’s likely because they’re not nearly as adept as they’re claiming.
3. Investment Offers That Just Fall Into Your Lap
For the best results, you should always go looking for investment opportunities. Waiting for them to come to you – or worse, fully embracing the ones that come to you without doing your due diligence – is little more than a recipe for disaster.
Case in point: every seasoned investor knows the experience of getting a totally unsolicited investment opportunity from someone who is essentially a complete stranger. The fact of the matter is that the lion’s share of these situations is scams, plain and simple.
Along the same lines, always be wary of investment opportunities from either people you “sort of” know (like acquaintances or friends of friends) or people who you know who have never shown any interest in investing before now. Most of the time, these people will come to you with what they insist is a “sure bet” – they just need a little money to help them get started. This, too, almost never works out for the benefit of anybody, and these types of situations should usually be avoided.
4. Putting the Pressure On
Another one of the biggest red flags that I’ve seen in my career as an investor has to do with people who come to you with an offer and who instantly turn up the pressure if you don’t immediately act enthusiastic.
Think about the last time you went into an electronics store, for one thing, only to have a salesperson try to sell you something far more expensive. It probably wasn’t a good experience, and it may have put you off shopping at the store altogether. People who exert buying pressure are a lot like that, only on a much larger scale.
Ultimately, someone who turns the pressure on and won’t turn it off can mean a few things. It could mean that you’re dealing with a novice who simply has no idea how the process works. It could also mean that you’re dealing with a business that is on the decline, and they’re trying to get you to invest in them before you realize what is actually happening. Regardless, it’s a situation that you don’t want to find yourself in and if you do, proceed with extreme caution.
5. A Lack of Understanding
While a lot of the other items on this list had to do with red flags as they pertain to the people you’re dealing with, this final one has to do with the way you conduct yourself.
Simply put, it’s a bad idea to invest in any capacity in an opportunity that you don’t fully understand. The more complicated the situation is, the more likely it is for something to go wrong. That’s not to say that you can’t take the time to learn more about that which is in front of you – but if you begin to research the opportunity and still end up scratching your head, you’re looking at a situation you don’t want to be in. Sometimes you might get lucky, but it’ll be exactly that – luck.
In the end, there are great investment opportunities out there appearing every single day – you just have to know where to look for them. But more importantly, you need to know what you ultimately need to stay away from for your own wellbeing – which is exactly what the red flags on this list are intended to help you do.