Investing red flags

There’s nothing more enticing for a new investor than the prospect of quickly doubling your investment. It seems that every day there is some shiny new industry or product that promises to make millionaires of those who are savvy enough to jump in on that ground floor and see it take off. We think of tech companies like NVIDIA which surged over 14,000 percent in the past decade, meaning if you had joined that train early enough 10 years ago your $10,000 investment would be worth around $140,000 today. It’s the same with Tesla, which for instance, has grown roughly 2,500 percent as of September 2026 and over the past decade. These, however, are market anomalies. Across most listed United States (US) stocks, fewer than four percent generate virtually all the net wealth creation in the market. Armed with this information, investors should be aware that any person, company, or entity promising extreme returns on investment should raise a red flag.

We all know that in life, and investing, there is risk involved, and as the saying goes, go big or go home. But taking on any level of risk with the hope that your hard-earned dollars are doubled or tripled in a short amount of time is not a risk worth taking. That is not to say don’t take any risk at all, but to instead take the risk recognizing that seeking to benefit from the next explosive market trend carries with it an extreme risk of capital loss. In fact, high risk investments should only be pursued after building a rock-solid financial foundation.

In a conversation with an associate recently, the topic of investing came up, and I was told that this person was considering jumping directly into a higher risk investment strategy made up primarily of international companies and indices and has been achieving around 14 percent annual returns for the past few years. This is not a bad choice to make, especially if you are ready to take on greater risk for higher returns. The problem came when I asked what the rest of his portfolio looked like. He was smart and had saved quite a substantial amount of money and equally smart to now want to put that money to work by starting to invest. But I challenged him to consider a more moderate strategy to start before jumping headfirst into a more aggressive one. I’m not sure if he ultimately took my advice.

The general rule of thumb, however, is to allocate non-traditional strategies between five and 10 percent of your investment portfolio and to avoid allocating more than 25 percent of your total investment portfolio to these types of strategies. You can, however, stray from this rule if you have a higher risk tolerance and a longer time horizon.

It’s important to remember, though, that allocating more than 25 percent of your portfolio can expose your entire portfolio to severe losses.

So, here are some red flags to look out for when you are considering high risk investments:

Guaranteed or unusually high returns: No legitimate investment can guarantee a return, and any that promises consistent double-digit gains with “no risk” should be treated with suspicion. If it sounds too good to be true, it almost certainly is.

Pressure to act quickly: Phrases like “limited spots available” or “this opportunity won’t last” are designed to keep you from doing your homework. A sound investment will still be there after a few days of research.

Vague or overly complex strategies: If the person selling the investment can’t explain in plain language how it makes money, that’s a problem. Complexity is often used to hide risk, or worse, fraud.

Unregistered products or sellers: Verify that both the investment and the person offering it are registered with the appropriate regulator, such as the Securities Commission of The Bahamas.

Difficulty withdrawing your money: Be wary of lock-ups, surprise fees, or delays when you ask to cash out. This is a hallmark of Ponzi-style schemes.

Reliance on hype or social media: Investing decisions driven by influencers, group chats, or fear of missing out are rarely sound. Make sure your decisions are based on your own goals and research.

Above all, take the time to ask questions, read the fine print, and consult a licensed financial professional before putting your money into any high-risk investment. The goal isn’t to avoid risk entirely, but to take it deliberately and only with money you can afford to lose.

• Need help reaching your financial goals? Reach out to us at CFAL for a financial planning session. Our certified financial planners are here to assist you with budgeting, saving, and investing needs. T: (242) 502-7010 | E: info@cfal.com | W: www.cfal.com Follow us on social media for additional tips and insights.