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.

Sign up for Kiplinger’s Free E-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.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Justin J. Kumar embraces a proactive, systematic investment management approach with a customized, proprietary system to help guide his clients toward their financial goals.
-
Revocable Living Trusts: The Good, the Bad and the Ugly
People are conditioned to believe they should avoid probate at all costs, but when compared with living trusts, probate could be a smart choice for some folks.
By Charles A. Borek, JD, MBA, CPA Published
-
How to Plan for Retirement When Your Child Has Special Needs
When your child has special needs, your retirement plan should include a plan for when you'll no longer be able to care for them yourself. A five-step guide.
By Christopher M. Butterworth, ChSNC®, CRPS, CLU® Published
-
Revocable Living Trusts: The Good, the Bad and the Ugly
People are conditioned to believe they should avoid probate at all costs, but when compared with living trusts, probate could be a smart choice for some folks.
By Charles A. Borek, JD, MBA, CPA Published
-
How to Plan for Retirement When Your Child Has Special Needs
When your child has special needs, your retirement plan should include a plan for when you'll no longer be able to care for them yourself. A five-step guide.
By Christopher M. Butterworth, ChSNC®, CRPS, CLU® Published
-
Tax Advantages of Oil and Gas Investments: What You Need to Know
Tax incentives allow for deductions and potential tax-free earnings — benefits accessible only to accredited investors in small producer projects.
By Daniel Goodwin Published
-
Charitable Contributions: Five Frequently Asked Questions
Make the most of your good intentions by understanding the ins and outs of charitable giving. A good starting point is knowing what's deductible and what isn't.
By Stephen B. Dunbar III, JD, CLU Published
-
Financial Leverage, Part Two: Don't Say We Didn't Warn You
A lesson in how highly leveraged investments can benefit the first movers and crush the next round of buyers.
By Stephen P. Harbeck Published
-
Taxes in Retirement: What ESOP Participants Need to Know
Most Employee Stock Ownership Plans (ESOP) participants transfer company stock to an IRA starting around age 55, so taxes on that money have been deferred.
By Peter Newman, CFA Published
-
Would You Benefit From Investing in Cryptocurrency?
Understanding the complexity of adding digital currency to your investments is critical, especially since drastic price changes can happen very quickly.
By Robert Cannon, MBA, CFF®, AIFA® Published
-
Why Company Stock May Be Riskier Than Employees Realize
Stock compensation has its perks, but employees must be realistic (and unemotional) about their investments' prospects. Sometimes strategic sales are smart.
By Michael Aloi, CFP® Published