My friends, family, and readers often ask whether they should invest money through a third party.
They talk about “agencies” or “investing companies” who advertise online and on social media with the message:
“Just give us your money, and we will give you X% returns every month.”
Here’s a rule of thumb: If third parties make that type of pitch, RUN as fast as you can.
Promising returns on your money is almost always a pyramid scheme. The people who start these schemes are charlatans who prey on your money. The pitch is always as follows:
- There’s a secret method for making money
- It’s such a good opportunity that it’s almost criminal
- We (as in, the agency or company) know how to print money with this opportunity
- If you want to get it, just give us your money and we will do all the work for you
- You don’t need to know anything about investing
- Just count your money!
The reason many people fall for these things is that the pitch is often really good. They present their opportunity in a credible way that you think, “Hmm… interesting.”
They don’t make outrageous claims or say you’ll get rich overnight. The returns they offer you are good, but nothing crazy. Anywhere between 15% to 25%. That way you’re still engaged without doubting them.
Financial literacy is a must
If you feel like you don’t have a good understanding of how the world of investing works, I highly recommend learning the basics.
To me, financial literacy is just as important as knowing how to read and write. I can’t stress how important it is that you know the basics of investing and personal finance.
Now, most of us know that we should control our spending habits, save money, and avoid credit card debt. But what about investing?
- How does the stock market work?
- How do you even buy stocks?
- What types of returns are normal?
- Do you need to own bonds or real estate?
- What are the costs that come with investing?
- How do I decide what I should invest in?
If you don’t know the answer to any of those questions, get started with learning! I also had to learn everything on my own. No one in my family ever owned stocks or invested money.
I learned everything I know now on my own. And then I actually started to invest my own money. That’s the only way you can learn the skill of investing.
Once you have some basic knowledge of investing, you will be better equipped to evaluate investment opportunities. The more you know, the better you can protect yourself from charlatans.
The more you know, the easier it also will be to hire financial professionals later on in your career. Let’s say you want to hire a financial advisor or accountant. If you have a conversation with them, you can ask them informed questions so you can judge whether they know what they’re talking about.
Knowledge is the best bullshit detector on earth.
And the more financial knowledge you have, the better you can manage and invest your own money.