Getting Rich Quickly

Welcome to Your Money.  Today we’re going to talk about how to get really rich really quickly through wise investing. 

I think we can all agree that the best way to get really rich really quickly is to buy a sure thing.   As the famous baseball player Yogi Berra once said, “Buy a stock, if it goes up, sell it, if it goes down, don’t buy it.”

But that is easier to say than to do.  Just how do buy only winning investments?  And do some people actually have the inside story on what to buy?

I’ve got a neighbor who loves to talk about his investments.  I’m sure you’ve heard people like him talk as well.  Every stock he has ever bought has gone up in price, he says.  Some have doubled, right after he bought.  I always kind of wonder, after an evening in his company – what am I doing wrong?  How come everyone else is getting huge returns, and I’m not?

But then I re-enter reality.  In fact, I can just about guarantee that my neighbor has bought stocks that tanked – he just doesn’t talk about his losing investments.  Why?  Simple.  You just can’t get really high returns without a really high risk of losing your money.  There is a very close relationship between risk and reward.  The higher the possible returns, the higher the risk of losing your money.

If you want your money to be really safe, you can stick it in a bank account, or buy a certificate of deposit.  Both are guaranteed by the government and both pay a small amount of interest.  To go after really high returns, you have to risk losing your money.  Some investments are less risky than others.  When you buy a bond, you’re making a loan to a company, and you get interest payments in return.  The only risk is whether the company stays in business long enough to make the bond payments.  When you buy stock in a company, you take on more risk.  There’s no guarantee that you’ll get your money back.  In fact, if the stock price goes down, you could lose money.  But if the stock price goes up, or if the company pays dividends, you could end up with more money than the interest payments on a bond.  All investments have some risk.  The higher the potential gain from an investment, the higher the risk.  It’s that simple.

We’ve all gotten spam e-mails about these companies we’ve never heard of, promising that the company is poised to take off and earn triple digit returns.  The sad fact is that they are mostly scams – stock frauds.

They work like this.  First, some bad guys buy stock in a small company that doesn’t have a lot of stock trading activity.  Then they send out spam e-mails touting the company.  They often make up web postings that claim to have inside information.  Everything urges you to buy the company really quickly to benefit from a fast price rise.  Investors purchase the stock in droves, creating high demand and pumping up the price. The fraudsters behind the scheme sell their shares at the peak price and then stop hyping the stock.  The price falls quickly, and investors lose their money. This kind of scheme works best with small, thinly traded companies because it's easier to manipulate a stock when there's little or no information available about the company.

Fraudsters lie a lot to get you to buy their stock.  I’ve gotten faxes too – saying I have to act quickly to buy a company because it has a huge contract, or just discovered a new drug.  You can protect yourself by deleting any unsolicited e-mails you get about hot stock tips.  And by ignoring the spam faxes.  If you’re curious about the company, don’t rely solely on information from Internet chat rooms or bulletin boards, even if they say they are from company insiders.  Instead, look up and read the company financial statements.  You can find financial statements from most publicly traded companies on the website sec.gov.  Those filings will tell you more about the company, and whether it really does have the contracts it claims.  If you can’t find financial statements for a company, you’re really flying blind.

So we started out asking how to get really rich really fast, with guaranteed high returns.  I think what we’ve said is that you don’t get really rich really fast through investing.  Successful investing takes a lot of time.  That’s why the sooner you get started socking money away into your retirement plan, the better off you are.  Guaranteed high returns through investing aren’t real – because the reality is, in order to have a chance at really high returns, you’ve got to risk losing your money. 

The best way to get rich through investing is to carefully select your investments, and give them years to grow.  So the next e-mail or fax you get, promising huge returns for little or no effort – invest in your own future by deleting the e-mail and throwing away the fax.

Thanks for joining us.  Your Money is brought to you by the U.S. Securities and Exchange Commission.  Write us at podcast@sec.gov .