9. Promised Returns in Double Digits
You probably see ads all the time for investments that are “guaranteed to return 20% per year” or even more. Often, details are scarce about what the investment actually is. The more audacious promoters might even throw in key words like “government-backed” or “insured.” Particularly in years when your own portfolio isn’t doing much, it can be enticing to check these “investments” out. Who wouldn’t want to earn a guaranteed 20% per year?
Why Investments Guaranteeing Double Digit Returns Are Toxic
For starters, no investment is guaranteed to deliver that kind of return. Some are insured, and Treasury securities are backed by the federal government, but none can “guarantee” you double-digit returns. To place things in context, it helps to know that the average annual return for the S&P 500 from 1926 through 2018 was about 10% — and even that return is far from guaranteed. From Oct. 9, 2007, to March 5, 2009, for example, the S&P 500 sank more than 56%. Any investment that a friend, stock promoter or online website tells you is “guaranteed to return 20%” is definitely toxic and possibly a scam.
