On this episode, we discuss investing “laws” that should be kept in mind when making investment decisions. We also encourage more due diligence from investors when considering any investment product. The Coach’s Corner segment can be listened to here or you can hear the full episode here.
[00:00:00] All right, you want to get in the coach’s corner? Let’s do it. What do we got? Excuse me. Uh, we’re going to talk about an article from Jason Zweig in the Wall Street Journal, solving the mystery of an investment that’s too good to be true. Jason’s article is about Mega High Yield Term Deposit, a company led by unlicensed salespeople promising 17.
1 percent returns on your investment. Just another reason why people are so skeptical about the financial services industry. I just cannot believe. The world is still gullible to to this and I and I’ll go back to we had people that we know Um, I forget the crypto money market What was it called stable coin stable coin?
like when money markets were paying like zero or one We had people coming to oh the stable coin. It’s a money market. I mean it’s cash, but it pays eight seven eight [00:01:00] nine percent Why can’t investors understand that there’s laws basically when it comes to investing. Whatever like the treasury is paying, that is the safest investment on the planet.
And the further you go up from there, from a return standpoint, the greater risk you’re assuming. And large cap stocks on average, 500 will get you 10. So if you’re greater than 10, If something’s promising greater than 10 percent rate of returns annually, you’re assuming higher risk than just large cap U.
S. stocks. Why can’t they wrap their brains around that? Is it, is it more complicated than that? Am I missing anything? You’re missing humans and emotions and you know, fear [00:02:00] or greed and those two being really strong drivers in people’s decision making and blinding them from reality. What, what you’re describing, but when someone, so the only thing that’s technically kind of guaranteed are like us treasuries.
They’re the safest investment. On the planet right now because they’re backed by the U. S. government, right? Am I saying anything in incorrect? No, or bank cds because of the fdic insurance Yeah, so And if so like the spread is between whatever the treasury is paying let’s say, you know, 1. 78 You know to 10 for stocks if something is greater If something’s greater than the treasury, right like like three four five percent guaranteed You there should be like a little bit of a red flag that goes up depending on who’s making that statement, right?
If it’s an [00:03:00] insurance company or a bank, they, they have insurances in place to back those guarantees. If it’s anything else, there’s like, you should, your ears should perk up like that’s there. That’s a red flag. So I think the other thing you’re missing, maybe it’s just, you know, this is like basic financial literacy, this, this point you’re making.
But I think that there’s just so many people that do not possess even that, um, which are the, which are the victims of this stuff, you know, like, I don’t think that, like to us, it just seems like this is like rule one Oh one in the world of like investing or, or whatever, but yeah, I guess there are so many people that are complete neophytes and don’t even grasp what you just said.
Yeah. And that’s my fault. You know, I, that’s, that’s, I apologize for being so, uh, energetic about that because it’s such [00:04:00] basic to, to, to me and us because we’re, we live and breathe this every day. Um, if I want to go put the windshield wiper fluid into the oil, you know, the, the mechanic would be like, what are you, a frigging idiot?
I’d be like, I don’t know. It just, it looks like where the, where the oil goes, right. But that’s not going to potentially cost you hundreds of thousands of dollars. There’s a little bit more at stake here. Um, so that’s just maybe tell people like that, that’s the rule. Like how long has the stock market been around a hundred years?
Roughly? Well, more, but I call it a hundred. Give me, well, give me the like exact, if it’s 104, I might, I might take issue with you, but yeah, I mean, it’s been around for a hundred years and that’s the law. Like if there’s laws, when it comes to investing, like bonds average five or six long stocks, average 10, 10 or 11.
and cash is about three. And that’s it. Like there’s not going to be, there are no products that are going to be created or have been created that are going to [00:05:00] give you great, like more safety and greater return than 10%. It doesn’t exist. It’s never going to happen. If it does happen, that means everything is kind of flipped.
Yeah. But I think the other aspect here is you have, you have salespeople that are aggressive and like breathlessly self touting this, Oh, and you’re, you know, I’ve been selling millions and millions of dollars of this, this yield plus fund, or whatever they’re called, you know, your neighbors, your friends, the community, they’re all in it.
Why not? Why aren’t you? I think it all, a lot of this stuff comes back to FOMO, fear of not being the one that’s getting the guaranteed 17 percent return. Whenever you see the word guaranteed, right, they say this return is guaranteed. Go look to see what treasuries are paying. And then you’ll have an idea of how much more risk you’re assuming.[00:06:00]
Or, or go see what kind of CD rates are at the bank. Or what fixed annuities are paying, right? The treasury is paying 1. 78 And cds are paying three and fixed annuities are paying four All of those things are backed by something insurance company, uh fdic or the u. s. Treasury um, if that’s the kind of the scale and then you see something it’s guaranteed and it’s paying you eight it’s It’s too risky.
There’s something wrong Because the most stable organizations in the country are giving you at the most four on a fixed basis. You’re not going to get double that guaranteed risk free. You’re just not, it doesn’t exist. It goes in a layer down where you mentioned bonds earlier, you know, um, treasury bonds are paying, let’s call it 4 percent right now.
Well, if you buy a corporate bond and it’s paying you eight, say it’s issued by Carnival Cruise Lines, it’s paying eight because Carnival Cruise Lines is a risky company. way riskier than Microsoft, [00:07:00] which whose bonds are probably paying four or five. So like all of this, these laws that you’re talking about applies across the spectrum of investments themselves, not just generically, like, you know, what we’re talking about here, like a 15 percent guarantee.
It’s, it’s literally within the universe of stocks as well. Um, you know, small companies are riskier than. Big established companies. So the Expectation is over a long period of time. You’re gonna get paid more for owning it, but you are definitely taking more risk by owning it Yeah, and I think it’s fair to say like the higher the return the more risk you’re assuming Yes, and there and there’s like I gave you the standards cash three money bonds five stocks ten or five or six four bonds stocks ten anything above those numbers like You’re outside the range of like normal, um, uh, what’s the term I want to use like, um, normal products, right?
Stocks, bonds, cash. [00:08:00] You see 17 percent guaranteed. You’re assuming a ton of risk. I don’t care what the person selling it or the institution that’s pushing it says. It’s not guaranteed. It’s not safe. You’re assuming a ton of risk. You can lose half to a hundred percent of the value that you invest. And we’ve had experiences with clients where that has happened specifically.
And we know this article is citing situations in which it happens. It’s just people don’t do their research. You know, I think in, in addition to being sold a bill of goods and maybe being unaware of the position, like the way the product is being positioned, spending any time trying to like. Vet out the person who’s selling it to you, understand how they’re being paid, that the company who’s created this product and whether or not there’s any information available.
I mean this particular article referenced a company that [00:09:00] like said that they were SEC registered and there’s, know the way to find them on the SEC registry. Now I believe that most people won’t spend the time to go to that particular, maybe that length. But you’ve got to look out for yourself. Like you have to do some due diligence.
I believe fully that there’s a lot of responsibility, of course, on these sales people. But there, I also believe there’s got to be some responsibility on the investor. To to make better decisions or more informed decisions maybe and not just listen to one guy who knocked on your door Yeah, let’s get back to what mike was saying.
Yeah, there’s the fear of missing out greed Um that is never going away and it’s unfortunately, I think always no matter how transparent our industry gets It’s always going to be a function of investing, right? You’re going to talk to somebody who says you got to do this This is unbelievable. I mean, we’ve never seen anything like this before you have to [00:10:00] invest You You know, like they were doing it with penny stocks in the wolves of wall street days and It’s still happening now, and we just have to be better Uh more educated and like you said no one’s gonna take the time to go to the sec Take the time right go.
No, right. You’re gonna invest 10 grand or a thousand dollars or five hundred dollars Double check man, make sure it’s legit Yeah. And it’s a colossal failure on the part of the SEC and the regulators because this stuff still goes on at such scale where we’re close enough to it all that we know kind of what they’re spending their money and time on.
And it’s not largely not this. Um, it’s, it’s, it’s very frustrating to read articles like this. Just knowing that we’re We’re, we’re, we’re part of this world as to your point at the beginning, Meg, where it’s just another black eye for the industry. Um, but it’s everywhere. I mean, the other thing that reminds me too, is like closed end funds are a very [00:11:00] popular, like a type of mutual fund that, that are sold extensively.
And much of how they’re, they’re sold has to do with the fact that they advertise like 12%, 14 percent yields. Which is not inaccurate, but the way they get that is they use leverage. So they borrow a ton of money and they, let’s say they have a dollar invested, then they buy 4 worth of stuff. And that’s how they juice it up to get those yields.
But the risk is massive. If things go the other way, then you’re, you’re, you’ve lost most of your investment. It’s, but they’re not marketed that way. Yeah. And it’s just amazing. Um, the time that I’ve been in this industry, I think it’s a hundred percent. Every time I talk to a client or meet an individual that says, Oh, this, uh, this fund, it’s, it’s, it’s got guaranteed this.
They’ve all been wiped out. Like they’ve all, if they [00:12:00] held onto them during, like they’ve gotten to a point where that guy got thrown in jail, the sec seized all their assets and the clients lost. 250, 000. 90, 000. I mean, it’s just, it’s, uh, it’s been a hundred percent. Everything that they’ve, that a client has brought to the table that I know is just absolutely 100 percent too good to be true has blown up in their faces.
Yeah, you’re right. Every time, every time. It’s just a matter of time. You’re right. You’re right. So you might get lucky, right? You might get a year or two of those guaranteed 19 percent yields and be the first one to ask for your money back because if you’re not You won’t get any of your money back. Dun, dun, dun.
Okay, if it’s too good to be true. It is. There’s no free lunch, Meg.
