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  • Writer's pictureKeren-Jo Thomas

The Dangers of Financial Scams and Risky Investments

The financial landscape can be a bit of a minefield, especially when you feel like you’re navigating it alone and come face to face with enticing investment opportunities that promise high returns. 

Sadly, over the years, I've seen first-hand how these schemes can decimate people’s finances and destroy their well-being. In fact, it's a recent experience where my client decided to take the leap into an investment without seeking advice and has now lost 85% of their life savings, that’s spurred me into writing this blog.

It’s absolutely heart breaking for all concerned when these things happen and believe me it’s happening much more frequently and in ever more imaginative ways.

If it seems too good to be true, it likely is

The very first thing I feel duty bound to say is this…if it seems too good to be true it likely is! And yet, depending on our individual financial situation, we don’t always remember this. 

One of the most important things to realise when it comes to investing is that extraordinary returns come with extraordinary risks. It's so crucial to never invest or risk more money than you can afford to lose, and certainly no more than 5-10% of your total wealth. 

And, as harsh as this may sound, investing needs to be a clear headed, calculated (and ideally professionally advised) decision, and not driven by desperation, blind kindness, or greed. Scammers know exactly how to press those particular buttons, and it’s your job to stay alert to that and check in with yourself as to what’s driving your desire to hand over your hard-earned money. 

The super wealthy’s investment strategy

Having worked my entire corporate career advising high-net-worth individuals at HSBC, I can assure you that the super wealthy rarely, if ever, invest in high-risk, high-reward investments of any kind, and especially not ones like cryptocurrency or single stocks. 

These clients understand that the market can be volatile and that a single stock for example can lose up to 50% of its value in a single day due to bad news or market shifts. Their investment strategies revolve around minimising risk and ensuring steady, long-term growth.

Typically, these super wealthy individuals diversify their portfolios across various asset classes like real estate, market investments, and venture capital. And they’ll often invest in their own businesses while always keeping one eye on managing their risk.

Risk and reward are a balancing act

Investment opportunities can be broadly categorised based on their levels of risk and reward:

  • Low Risk, Low Reward: Fixed income investments, offering 1-3% returns, give stability and predictability.

  • Medium Risk, Medium Reward: Developed market investments have slightly higher risks but offer better returns

  • High Risk, High Reward: Emerging markets that can sometimes be fraught with political and economic volatility, bring significant opportunities but also substantial risks

So, remember, the potential for high rewards always comes with the potential for higher risks. And I must be real with you, there’s no quick way to make money unless you’re exceptionally lucky…I know, I know, that can be hard to hear! Instead, to win the race, you need to take the long-game approach with long-term, diversified investments.

The pitfalls of cryptocurrency

I wouldn’t be doing my job properly if I didn’t talk about Cryptocurrency in a blog about risky investments. 

Crypto has had quite a lot of significant attention in recent years, but it’s still a highly speculative and risky investment, and not something I advise my clients to get involved. But if they do, I caution them to only invest what they can afford to lose. 

The reality is that there’s no reliable way to measure its value, and many people have lost substantial amounts of money in the volatile crypto market. It's also worth noting that the super wealthy generally steer clear of such speculative assets. They understand that preserving their wealth requires wise, well-researched investment choices.

The perils of trust

As I’ve been writing this blog, a previous client of mine keeps coming to mind. I’m going to very briefly share her story to highlight that scams and risky investments can come from all sorts of places.  

I’d been working with my client as her financial adviser for over a decade. She was in a vulnerable state, dealing with her mother's serious illness and a recent dementia diagnosis, when she met a doctor who appeared very reputable. He was kind to her mother, which built a level of trust between them. As time went on, he asked my client to lend him money to expand his practice. I advised her against it, but by sowing seeds of doubt in her mind about whether she could trust me and was I acting in her best interests, we parted ways, and she lent him the money in total 200,000 CHF.  Unfortunately, he disappeared with every penny, leaving her financially and emotionally devastated.

The importance of professional advice

I share the example above to really highlight that anyone can be manipulated, regardless of their gender or experience. The lesson is to be extremely careful and always seek professional advice before you dive in and make any significant financial decisions.

Working with a professional like me ensures you receive regulated advice and the best possible guidance for your unique financial situation. 

And because I’m bound by regulations if a client were to lose 50% of their money, for example, and file a complaint against me, an investigation would determine whether I’d followed the right processes and provided sound advice. 

I always want my clients to feel empowered with their own finances and the decisions they make, while also knowing that I’m here with them every step of the way to support and advise.

If you do not want to go down the route of regulated advice and want to manage your own investments ETFs (exchange-traded funds) is another alternative, they are low cost and offers diversification.  If you would like to understand more, please send me a request to join the female financial community for ETF discussions. When it comes to larger sums though, I strongly recommend getting some professional guidance. For example, if a client wants to do their own investing and has the time to learn and implement, I’m here as a sounding board for them to check things and make sure they understand what they’re stepping into, before they step in.

Diversify and protect your wealth

The most important rule of thumb when it comes to investing is to always diversify to lessen your risk. Anything can go wrong and spreading your investments across different asset types can protect your wealth. 

If you choose to invest on your own without regulated advice, please understand that the responsibility then lies fully with you. However, partnering with someone like me ensures you’ll have expert guidance and protection when you need it, and invaluable help with making well thought out decisions that match your financial goals and dreams.

I really hope you’ve found this blog helpful. And if you’d like support and expert guidance with your current financial situation and planning for your future, I’d love to help. I offer a complimentary discovery call to connect and talk through your unique needs. If you’d like to take the next step to an empowered financial future, CLICK HERE and let’s connect – I can’t wait to support you.

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