On Safe Havens

I saw an ad on-line today that touted a 27% return, in what it called a “safe-haven.” Sure, the percentage return is historical, not projected or certainly not guaranteed, and “safe-haven” doesn’t literally mean risk-free. That is just what they want you to think. I’m not saying they are crooks, but I don’t think you should ever be tricked into thinking that you have somehow stumbled onto an investment vehicle that is off the risk-return line. I am not saying that you can’t earn a 27% return, even in today’s market, but to do so will require you to risk the principal.

Years ago a co-worker told me of an investment opportunity that had guaranteed principal and a 20% return. He’d even tried it and the principal + interest came back as promised. I asked him how it worked – I mean who is paying 20% that has no credit risk? Only the Federal Government has no credit risk because they can print money. (But there is still the risk of devaluation.) They only pay 4%. Who is a better credit risk than them? And if they really are that solid, why do they want my money and why are they paying 20% for it? If they are that dumb, I see credit risk all over it. He didn’t know the answers, but it somehow involved currency exchange and off-shore investing. And he had tried it. Isn’t that proof enough?

He told me later that he had learned it was all a Ponzi scheme, meaning that the return was only funded by dollars from new investors. Illegal in all 50 states. There is huge risk in that. Avoid the delusion; you can’t escape the risk-return parabola. I wouldn’t trust my money with anyone who says differently.

I’m not saying that there aren’t great returns out there, just they involve some risk. And I know that since our world isn’t a static thing, there are some blips off that line. However, for every ten minutes I spend thinking about it, there are a thousand professionals watching to arbitrage these differences. (I don’t think they are advertised on the Internet.)