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Identify and Beware of Get-Rich-Quick Schemes

Get-rich-quick schemes are investment methods in which you can supposedly make a lot of money in a short amount of time without having any knowledge or incurring any risk. If a promise seems too good to be true, it usually is. No one can guarantee a consistently high rate of return. Markets are unpredictable and so are returns. “Guaranteed high returns” are typically neither guaranteed nor high. The way to make money in the stock market is the old-fashioned way: investing in a diversified portfolio for many years. President Ezra Taft Benson cautioned members of the Church to avoid get-rich-quick schemes when he said the following:

Be cautious . . . about ‘get rich’ schemes. . . . Proceed cautiously so that the planning of a lifetime is not disrupted by one or a series of poor financial decisions. Plan your financial future early; then follow the plan (Sermons and Writings of Ezra Taft Benson, Intellectual Reserve, USA, 2003, p. 195).

Elder M. Russell Ballard stated the following about get-rich-quick schemes:

There are no shortcuts to financial security. There are no get-rich-quick schemes that work. Do not trust your money to others without a thorough evaluation of any proposed investment. Our people have lost far too much money by trusting their assets to others. In my judgment, we never will have balance in our lives unless our finances are securely under control (“Keeping Life’s Demands in Balance,” Ensign, May 1987, 13).

There are many types of get-rich-quick schemes. The paragraphs below discuss some of the most common schemes: day trading, trading rules, stock market secrets, and outright lies.

Day trading: In day trading, an individual with little or no training in investing gives up all of his or her spare time to attempt to outperform the market’s benchmarks (and other investment professionals) after taxes and other fees. Most day traders make very little money and waste a lot of time at the expense of their families and often their regular jobs. Few, if any, day traders beat the market consistently over time and after taxes. While day traders do make money when the market is going up, day trading is not a viable long-term strategy.

For many, day trading is a form of entertainment, not investment. As long as you consider day trading to be entertainment, and as long as you only speculate with a small percentage (less than 2 percent) of your overall portfolio, it can be entertaining and fun. But it is not investing.

Trading rules: Trading rules are recommendations generated by individuals or computers for buying and selling stocks, mutual funds, and other assets. Marketers insist that you will be able to beat the market by using these rules. Do not be fooled by these “rules.” Think about the marketers’ motives. Ask yourself, if this trade is so great, why are they telling me? If the rules were useful, the sellers would just use them to get rich; they would not sell them to others. Be aware that all trading rules have major flaws. The biggest flaw is that they do not work consistently.

Stock market secrets: Stock market secrets are shortcuts, or secrets, that supposedly only the professionals know; marketers are willing to share these secrets with you—for a price. Again, look at the marketers’ motives. Ask yourself, if this secret is so good, why don’t the marketers invest their own money, make millions of dollars, and retire to an island in the Pacific? If the shortcut were useful, the marketers would use them to get rich. They would not share them. In investing, it is critical to use time-tested information about markets, instruments, and trading; taking supposed shortcuts is usually hazardous to your wealth.

Outright lies: Outright lies are the promise of high and consistent above-market returns in the market without risk. Don’t get sucked in. If it seems too good to be true, it usually is! No one can guarantee a consistently high specific rate of return. Markets and returns are volatile. Guaranteed high returns are never guaranteed or high. The way to make money in the market is the old fashioned way—to invest in a diversified manner for many years.


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