Not all high returns necessarily indicate investment fraud, but it can be an investment red flag if accompanied by a few other factors. Here are some examples of situations in which a high return could be a sign of a scam:
- The risk doesn’t match the return. If an investment offers high returns, it should also involve a higher risk. Make sure you understand what happens in a worst-case scenario, and carefully review the investment with a third-party financial professional if things seem a little “off.”
- The performance of the investment is significantly different from similar products. Compare the new investment offer to other, similar investments. Does what you were told match up with the average market performance for that type of investment? If the returns seem unusually high, make sure you research the investment thoroughly and understand how it works and who gets paid.
- The promoter tells you the returns are “guaranteed.” All investments come with risks, and returns can’t be guaranteed. If the person pitching the investment to you starts making a lot of promises or “guarantees” high returns, you should probably be suspicious.
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