Investing? Know that a safe promised return may not be ‘real’

Q: I was referred to a company that states that its corporate bonds have a yield of 9%. They claim that returns are “safe”. How is this possible?

A: It is impossible to be safe and realistic. Your suspicions are well founded. Still, it’s common to see “investments” that promise much higher returns than investments from real “safe” instruments (think bank CDs or US Treasuries). Promises of higher than these mediocre safe returns probably come with hidden risks (such as fraud), if not worse.

It was just over a year ago that we were informed that a 1-year bank CD would return no more than 2%, while crypto-based “stablecoins” are paying 9%+ returns. was. The literature (and some of the investors I spoke with) advocating these “high-yield, safe” investments seemed confident. The reasons for these returns being expected and “safe” were well explained. Needless to say, these “investments” are now worth very little just a few months later.

You should always try to understand the risks underlying returns that exceed those guaranteed by the US government (it is safe to compare using the 1-year bank CD interest rate). These risks are always there. always, always, always!

In many cases, you run the risk of not even getting back all of your original investment. Alternatively, the promised/expected interest return will be significantly less than advertised. Alternatively, the return on investment will take much longer than originally advertised.

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