What’s red flag advice?

by Sep 12, 2018Life & Money Q&As

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Which financial advice raises a red flag?

Beware of advice regarding a high return, low risk, low tax investment
and of any advice that will lead you to become over indebted.

Many years ago a member of my family was advised to invest most of his savings in a bank called BCCI. The savings account was promoted on the back of a very generous rate of interest. And since it remained as cash, and was not exposed to volatile stocks and shares, it was obviously safe as houses. My cousin saw this as a worthwhile investment. However, he didn’t bother to look in too much detail at what went on under the bonnet of the bank. In fact even the smallest understanding of the difference between borrowing and savings rates would have helped my cousin understand that the rate of interest offered was unsustainable. Sure enough BCCI failed shortly afterwards and my cousin lost all bar a few pence in every pound he had invested.

Too good to be true…

There is no such thing as a high return, low risk, highly liquid and tax free investment, so advice to buy such an investment should more than raise a red flag – it it should make you run a mile.

Debt overstretch…

There is good debt and bad debt. Borrowing to fund a course that leads to growth and personal development is good debt. Borrowing long term to buy a home is good debt. Borrowing for day to day expenditure, spontaneous expenditure, a holiday or to fund an investment is bad debt and advice to borrow in these circumstances would raise a red flag fore me.

Debby Hudson Photo by Debby Hudson on Unsplash

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