Updated on 07.13.08

Ten Tip-Offs That You’re Getting Bogus Financial Information – And Five Antidotes

Trent Hamm

Every day, I get ten or twenty solicitations to talk about some sort of shady investment or debt relief product. These people try all sorts of tactics to convince me that their product is good and that I should talk about it.

Over time, I’ve come to discover a big handful of tell-tale signs that the product is likely bogus and isn’t worth my time. I’m not claiming that all products using these claims and tactics are bogus, but I am saying that when I see these signs, I’m usually pretty confident that there’s something false going on.

Here are ten likely warning signs that a financial program or product isn’t worth the time of day.

They want you to buy their product and doesn’t share much information without you making that purchase. “This product will eliminate your debt!” “This product will make you a millionaire!” “Just send us $49.95!” That’s a good investment – for them. If you can’t view at least a strong sample of what they’re talking about, there’s a good chance you’re paying top dollar for something you can get for free or very cheap elsewhere.

They talk about short term returns only – less than a year. Whenever someone talks up a hot stock or investment, they only show you very narrow returns. A stock going up 40% in the last month doesn’t mean squat, because past performance is no indication of future results. Unless you’re day trading, the only results that matter should be very long term results, and even those aren’t a guarantee of future performance. Anything less than a year is basically chaos, unless you have a very deep understanding of the company or investment. The person talking about the investment likely has only a casual insight into the company, not nearly enough to be shilling hard for the stock on CNBC.

They guarantee returns that significantly exceeds major stock indexes like the Dow or the S&P 500. If you hear any guarantees of returns above about 7% or so, run for the hills. You can get returns higher than that, but there is absolutely no guarantee of such returns – you start to be at the mercy of the ups and downs of the open market if you shoot for higher returns than that.

They require an immediate subscription to the product without a free trial of any sort. If you’re looking at a subscription-oriented product, like a newsletter subscription or an online software subscription, and you have no access to samples of that subscription, stay away. Stay far away. Any information product that makes it difficult for you to sample it before you buy it is a product that’s hiding something from you.

They continually talk about how their advice is a “secret” that “they” don’t want you to know about. Instead of actually talking about the advice they’re trying to sell you, they’re instead trying to ply on some sort of irrational fear of government or large corporations, a fear that has very little to do with whether the advice is good or not. When someone uses completely nonsensical calls to fear or authority when trying to convince you they’re right, they’re usually completely wrong.

They try to use some great history of investing or money management as proof of authority, though you’ve never heard of them. When someone uses their previous record to impress you, yet it’s very difficult to prove or disprove anything they actually say in that record, then the record doesn’t mean much at all and it’s likely being thrown out there as misinformation. I have much more faith in a person who says, “I’m not an expert, but here’s what I know” than I do in a person who feigns expertise to try to sound authoritative.

They only use slickly-produced infomercials to describe their product. Any time a product is primarily sold through late-night infomercials, particularly when the product is unavailable anywhere else, big warning bells should go off. Infomercials are designed to only show you the positive aspects of the product – it’s a salesman’s pitch. If you cannot find additional information about the product, that likely means that it’s not being held up to scrutiny elsewhere – and that’s a very bad sign. Stay away – stay far away.

They offer you a bunch of free stuff up front to sign up. A free steak dinner for listening to an investment seminar? A free toaster for getting a bank account? Think about it rationally for a moment. Wouldn’t you rather the cost of that steak dinner – and the cost of all of those other steak dinners in the room – went towards making the investment better? Wouldn’t you rather the cost of that toaster went towards the bank joining a fee-free ATM network? Free stuff for signing up for financial products means that money is being spent on something besides delivering you the best financial product.

They list a huge number of “recommended” investments, often churned out at breakneck speed with little supporting rationale. Whenever you see someone put on the spot and naming a stock on television, or offering an immediate thumbs up or thumbs down on an investment, that’s a sign that the investment isn’t being given due diligence. While it’s okay to use that recommendation as a starting point, never base a choice solely on a quick remark by some talking head on television. Do some more research.

They contact you via unsolicited mail. Any unsolicited email you get from anyone should be taken with a grain of salt. Someone you don’t know writing to you talking about a stock or an investment opportunity without your explicit permission is something you want to avoid with a ten foot pole. The type of junk spouted by spammers, both in email and in print, isn’t even worth the time it takes to delete it.

Five Antidotes

Still thinking about the product? Here are five things you should do before you ever consider signing up.

Do some online (and offline) research and get as many different perspectives as you can. This is something you should do before you make any investment or any significant purchase. Don’t trust just one or two perspectives either – and that includes mine. Do your own research and look at a lot of different sources of information. Almost always, this will help you make a better move.

Find out about the long term history of investment options. If an investment seems compelling, make sure you look at the long term history of it. Don’t just bank everything on what it’s done in the last few months or even the last year. Past performance does not indicate future results, but longer-term data has a better chance of giving you a clue of what’s happening. For example, if you’re looking at an index fund, look more at the 5 and 10 year returns than the last year returns.

If it’s a new investment (like an IPO), either know it inside and out or don’t invest. If you don’t know about a new company in detail, don’t jump on its IPO, even if you’ve heard it’s “hot” from a bunch of different people. I’ve only recommended one IPO in my entire life (Google, which I pretty much demanded that several people I know invest in). Why? Because unless you know the company, IPOs are a crap shoot. It’s not investing, it’s gambling.

If it’s a solution to a problem you have (like debt management), look for more solutions – there are many, and many of them are free. If you’re trying to solve financial difficulties in your life, look for free solutions first before you shell out cash. Of course, you probably already do this if you’re a Simple Dollar reader, but it’s always good advice to follow. Don’t pay for advice, especially without seeing what you can find for free – there are a lot of people out there who are happy to help you in the blogosphere and on discussion boards, for starters.

Don’t invest in or do something just because you “trust” the person talking about it. While this can be fine for little things (particularly those without your own financial investment), don’t jump on board just because you trust the person. Obviously, you should use a trusted source as a starting point, but don’t just go for it because someone you value highly suggests doing it. Dig in a little bit more yourself, just to make sure they’re on the right page.

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  1. Adam says:

    Great post! I think this will help a lot of people. I cannot tell you how many times I’ve had people tell me about their rich relative contacting them from Saudi Arabia because they want to spread their wealth!

  2. Eric G says:

    “The person talking about the investment likely has only a casual insight into the company, not nearly enough to be shilling hard for the stock on CNBC.”

    You’re implying the people on CNBC are always well-informed. Uh. No.

  3. Jules says:

    I essentially disregard everything in my inbox that I haven’t actively solicited. Over the years, I’ve learned to keep separate email accounts for separate areas of my life: one is for spam–to get on my Meez account, for instance, I have to give an email address, and because I’m likely to get spammed for that, I give them that account. One is for my friends, and the third is strictly work. I still check all three on a regular basis, but in the spam account, everything that’s not related to Craigslist basically gets ignored.

  4. “They continually talk about how their advice is a “secret” that “they” don’t want you to know about”

    I totally agree with that. There’s no secrets in my opinion. I get a ton of junk mail in my e-mails daily, which promote some sham internet system or some daytrading system, which could make me a millionaire in my sleep. My question is, if you can make me a millionaire in my sleep for only 49.95, why don’t you become a millionaire ( or quadrillionaire) first, and then give it away for free? If you have already reached financial independence, and you are super rich using your system, then it makes sense that giving it away for free is a good thing.
    Another type of spam e-mail that I receive daily is the e-mail from the widow of the Nigerian executive, who wants to give me millions just because I have a US bank account. And you told me money can’t grow on trees :-)

    As for stock investing. If someone tells you that they will make you super rich daytrading/actively trading. Ask for their brokerage statements for the past 1/5/10 years, for a proof that they have successfully used their system. If they can’t produce that, then they are in the business of “selling newsletter” and not in the business of investing.

  5. Unless you have already done all your homework and you know more about it than the person selling it, it is NEVER wise to buy something because the deal won’t last. Even if you miss the “deal that won’t last”, the downside is much worse…

  6. Richard says:

    Great list, and the “deal won’t last” corollary from Kevin is a great addition.

    Another addition: beware if the solicitors use confusing language and large words. If something can’t be explained in simple terms, then the person explaining either a) doesn’t understand it fully themselves or b) is trying to confuse you.

    Either way, as Trent says, “run for the hills!”

  7. Jessica says:

    If this isn’t the most sickening thing….email scams are the worst. Especially the “I’m a multi bazillionaire widow with no children and I need a beneficiary” nonsense. They usually want you to pay over $1,000 to “reactivate my late spouse’s dormant bank account”, and then never send you the money or use your bank account information to rob you blind and steal your identity. Ugh…. If someone asks me for my bank account information I either tell them I don’t have a bank account or I give the routing and account number to my mortgage. If they truly have the money they can pay off my mortgage and the bank will send me the rest of those millions as a check.

  8. Excellent choice for a post, Trent. I’d be interested in how many of us were scammed by tales of riches, with little or no work when we first started our own homebased businesses. The hype over starting an online business used to be out of control. It wasn’t until several years ago that I read that the guys who made $50K – $100K online spent 60-70 hours a week at their computer. Talk about putting in some effort.

    I agree with Richard, Kevin’s corollary about the “deal won’t last” is some great insight.

  9. beth says:

    my only thought, besides how much i enjoy reading trent’s writing, is that people are suspicious by nature usually, so the emotional appeals seem to bypass the human fraud-filter. But then that same suspicion can create some kind of fear or procrastination to actually make a decision involving risk (like investing or just taking control of personal finances) to improve their on financial future and of generations to come. The subject of risk (informed and confident) is what seems to separate the winners from the “not so winners”.
    I think I hear another article here in the makin’

  10. ChrisD says:

    Ugh…. If someone asks me for my bank account information I either tell them I don’t have a bank account or I give the routing and account number to my mortgage.


    Why do you reply at all?

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