Everyone wants to get rich quickly, but no one likes the risks involved in chasing that elusive fortune. If you want to learn how to get rich, you’ll receive conflicting advice and run into a dizzying array of investment opportunities. And low returns aren’t the only danger. If you choose a bad method for making money, you could end up losing a big chunk instead of gaining one.
Last updated: Aug. 12, 2020
Inexperienced rehabbers often drool at the prospect of a cheaply priced house, thinking it will bring them riches as a rental. They ignore the fact that there’s a reason for the price. Brian Davis, the co-founder of SparkRental, learned this the hard way.
“My particular mistake was investing in super low-end properties, chasing super high returns,” he said. “In rental investing, bad neighborhoods look great on paper, because the typical numbers that investors use to forecast income and expenses miss many of the risks. An investor sees cap rates of 14% in the bad neighborhood compared to 7% in a good neighborhood, and think they’ll earn twice the return without having to invest nearly as much money per property. Meanwhile, they don’t realize they’ll constantly battle crime, vandalism, rent defaults, evictions, property damage, break-ins and high turnovers.”
The stock market historically provides good returns, but those who want to get rich quick dream of putting all their money into the next big stock rather than diversifying their investments and waiting things out. The U.S. Securities and Exchange Commission warns that some companies run seminars claiming to help you cash in on the stock market when they really want to rope you into expensive, and often worthless, investments. No one can guarantee how stocks will perform, so be suspicious if anyone at a seminar makes promises that sound too good to be true and applies high pressure for you to invest.
Everyone would love to get in on the ground floor of the next Apple or Microsoft or Amazon, but you can lose your money if you go all in and don’t choose wisely. Jon Vlachogiannis, the founder of AgentRisk, a wealth management product that’s driven by machine learning and active management strategies, said, “Machine learning algorithms create better portfolios and manage them more efficiently because they don’t try to predict. They just remove all our prejudices. … Even the best algorithms cannot predict the future — and they analyze billions of data. Why do individual investors think they can?”
Instead of picking a hot stock, the S&P 500 is popular with investors because of its steady gains. You won’t get wealthy overnight by putting your money into those companies, but you’ll build long-term wealth instead of taking a gamble.
Stocks that trade for less than $5 a share are considered “penny stocks” by the SEC. The name sounds innocent enough. After all, how much can you lose trading such cheap shares? Quite a lot if you try to use them as a method to get rich quick. These stocks have very low liquidity, and the companies that issue them are often new and unproven. Sometimes unscrupulous investors try to pump up the stock to lure in new investors at higher prices and then dump their shares, leaving the later buyers holding the bag. While the low cost is tempting, these stocks could cause you to lose it all if you put too much money into this volatile investment type.
“Whenever someone tells you that he made money trading penny stocks, 99% of the time he lost money. The other 1% is when he made money and then lost them all in another stock,” Vlachogiannis said.
If you’re seeking a path to riches, you might have considered starting your own business. This method works for many people, but Morgan Taylor, a finance expert at LetMeBank, warned that going into business for yourself is not a way to easily get rich quick, and you can lose a lot of money if you don’t realize that.
“Most people don’t understand what goes into that business,” she said. “It’s a lot of work and in the end, patience is going to be your virtue. Nothing is going to make you rich today, but it might make you rich in 10 years if you do your research, know your stuff and have a little patience.” If you’re not willing to wait, don’t buy a bunch of supplies and equipment and plunge into business. If you do, you’ll come out poorer on the other end.
It’s easier than ever to gamble because the internet makes betting accessible to anyone. Just enter your credit card number, place your bet and hope for a big win. While most people realize they won’t get rich quick by gambling, others take things too far and lose significant amounts of money.
CPA Logan Allec, owner of the personal finance site Money Done Right, said, “Betting on sports and horse races on websites has become very popular, and these sites are now almost legal in every state. The danger in these sites is how easily accessible they are, and the tempting sign-up bonuses they have. You may get lucky and win a large sum, but unfortunately, many people dig themselves into a hole and then keep digging deeper with sports betting. Once you lose a few thousand, you may place a bet double that size, and then lose that bet, and continue doubling until you have lost a huge amount of money.”
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Buying a Timeshare as an Investment
Timeshares are the gift that keeps on giving, but not in the way that the salesperson tells you. If you agree to sit through a sales pitch in return for some sort of free gift, the person trying to sell you on the timeshare might claim that it’s an investment that appreciates in value over time — in addition to being a money-saver on vacations. Unfortunately, if you pay $20,000 for a timeshare rather than invest it, you lose out on the $32,578 you would have at the end of a decade at a 5% rate of annually compounded interest. Worse, you’re paying maintenance costs on the timeshare and you’ll have trouble finding a buyer, even at a loss, if you decide to sell it.
Jumping On an IPO
Of all the plans for how to get rich, one of the most popular is getting in on the ground floor of a popular company. Initial Public Offerings of stock give investors a way to do this, but it’s not without risks. Some companies debut spectacularly at their IPOs, but their stock prices later plummet, leaving early investors with big losses. For example, Lyft, Uber and Slack all dipped 20%, and SmileClubDirect plunged 28% on its first day. Far from a way to get rich quick, buying into those IPOs accomplished the opposite.
Betting On Cryptocurrency To Get Rich Quick
Cryptocurrency is a buzzword that blinds some investors wanting to get rich quick, but Jason Glassberg, co-founder of Casaba Security, which provides services to cryptocurrency companies, had a warning.
“The bitcoin boom of late 2017 still looms large in the eyes of many retail investors, and there are plenty of people out there who’ve been bitten by the crypto bug and are counting on the next big price surge to make their millions,” he said. “It’s important for consumers and casual investors to understand that there is a lot of risk in the cryptocurrency market.
“These markets are extremely volatile, with wide price swings of over 10% extremely common. Not only that, but the industry is rife with shoddy practices, unethical activity and outright scams. There is very little visibility for investors into many of these businesses and coin offerings, and if you buy in, you better (be) able to lose all of the money you invest.”
Investing In a Business Fad
Fads come and go, and if you use them as a basis for getting in a particular business to get rich quick, your money can go, too. Pratibha Vuppuluri of the She Started It! resource guide for working moms, said, “Some people fall into the trap of getting into a business just because it’s on-trend. While it may give you profit for a while, once the trend if is over, you start losing as well. Thus, when getting into business, make sure you really did study well.”
For example, meal-assembly businesses popped up in countless strip malls across the country a little more than a decade ago. Then most closed when the consumer meal-assembly trend evaporated.
Buying Get Rich Quick Information From an Infomercial
If you’ve ever gone channel surfing in the middle of the night, you undoubtedly have been blasted by infomercials touting various ways to make big money. Just call the toll-free number, pay for the secret system and the money will come rolling in, according to the announcer. Unfortunately, the secret of how to get rich is not for sale on your TV screen. The Federal Trade Commission tries to shut down these schemes, but they pop up like weeds.
For example, when a self-proclaimed financial expert named Wade Cook was jailed for peddling phony financial schemes, he jumped right back into the same business as soon as he was released.
Investing In a Crowdfunded Startup
Investors looking for promising new companies can easily find them on crowdfunding sites. Unfortunately, some of the startups that look great in their online descriptions really are shams and many crowdfunding platforms don’t vet their campaigns. The only people who get rich quick from them are those who perpetrated the fraud. Some of the supposed startups have taken in thousands, or even millions, of dollars from hopeful investors before shutting down and taking the money with them.
The numerous home improvement shows make flipping houses look easy, and you can’t help but wonder if snatching up cheap properties and fixing them is the road to those riches you crave. Unfortunately, you could easily lose it all in this business because it’s so easy to pay too much for the house, spend too much on the repairs or simply just misjudge the market. If you’re tempted to give house flipping a try, remind yourself that TV shows always show the success stories. You don’t want to end up as one of the unseen losers in the house-flipping game.
Being Dazzled by Celebrity Endorsements
Celebrity spokespersons may claim that certain companies can tell you how to get rich, but remember that these famous faces are getting paid to make those claims or might have a personal stake in potential profits. For example, in 2019 the FTC filed a restraining order against a company that was using endorsements from HGTV celebrities to lure people into its real estate seminars with a supposedly free event that actually was a pitch for a costly seminar that offered basic advice while encouraging the purchase of more classes.
Selling Stocks When the Price Tanks
The stock market is a roller coaster, and it’s easy to panic when the price of your stock crests on a hill before plummeting down. It’s a better idea to ride out the storm than to sell, however. When the market is at a low point, it’s a great time to buy even more stock because you can bargain shop. While you probably won’t get rich quick when the market goes up again, you should see some tidy profits.
Investing Without Doing Your Homework
People who know how to get rich understand that it’s a process. All investments carry risk, but doing your homework before plunging in gives you a better chance to make a profit.
“A lot of investing is timing and having an idea of when to get in and when to get out. Even a great investment idea can backfire if the timing is off,” said Joseph Polakovic, owner and CEO of Castle West Finance. He likens jumping on an investment without doing research to “going to a casino and playing blackjack for the first time.” He explained, “It’s hard enough as it is, but you’re probably way better off if you understand some basic strategy.”
Putting Your Faith in Financial Books and Gurus
Books purporting to tell you how to get rich are all over Amazon, and some even hit the New York Times bestseller list. The financial gurus who write them assure you they have the secret to great wealth, but can you figure it all out from some book written by some person? “Reading a book and thinking that you can become rich is the equivalent of going up the stairs and thinking you can climb Mount Everest,” Vlachogiannis said.
And just remember that anyone can write a book, and you have no way of knowing whether the advice is good or the anecdotes on the pages are real.
For example, Robert Kiyosaki wrote the book “Rich Dad Poor Dad,” and its success happened despite any evidence that the rich dad was a real person or that Kiyosaki himself had successfully applied the lessons to building his own fortune. One of his companies ended up in bankruptcy in 2012 and, more recently, he found himself embroiled in a multimillion-dollar dispute with the company that handled seminars based on his book.
Investing Money With Telemarketers
Telemarketers usually want to sell you something, such as insurance or an extended car warranty, but some might offer you the opportunity to get rich quick with a surefire investment in something like precious metals. Don’t trust a voice on the phone to tell you how to invest your money; it’s most likely just someone reading from a script. Otherwise, you could end up paying too much for a bad investment — like the people who fell for a precious metals investment scam that was broken up by the FTC after milking people out of $5 million.
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Investing In Artwork
Art auctions in which pieces by famous names such as Van Gogh or Picasso fetch millions of dollars occasionally make the news, but you don’t hear about the sales in which investors lose huge amounts of money. Far from being a way to get rich quick, art investing is a strategy for the long haul and one that can cost you dearly if you don’t have the right expertise. Artwork prices are volatile, and even the value of works by famous artists can drop in rough economic conditions. You take an even bigger risk if you buy works by lesser-known artists, hoping for a big jump in value.
Taking a ‘Job’ That Requires You To Recruit
You probably have some annoying Facebook friends who beg you to join their team selling makeup, essential oils or slimming wraps, promising they’ve found the secret of how to get rich.
“These typically end up being pyramid schemes, and they only work if you can get five or 10 people beneath you buying a product that they can never unload,” Taylor warned. “There aren’t enough people in the world, much less willing ones, to make anyone rich like this beyond the person at the very top.” The FTC cautions that, while some multilevel marketing companies, as they are known, don’t qualify as pyramid schemes, it’s still extremely difficult to make money with them. A 2018 AARP Foundation survey found that 73% of people who tried network marketing lost money or didn’t make any money.
Invention Patent Scams
You have an idea for a brilliant invention, and that’s your personal answer for how to get rich — if only you can get it to the market. You haven’t managed to get an appointment on “Shark Tank,” but you’re intrigued by the ads on TV from companies promising to help inventors. If they offer free kits or reviews of your invention, beware. The United States Patent and Trademark Office warns that they’re trying to get you to pay for things such as patent searches and market research that cost hundreds or thousands of dollars, with no guarantee that your product will see the light of day.
Looking For the Next Broadway Hit
The musical “Hamilton” proved that Broadway shows can spark a cult following, as well as achieve major financial success. You can be part of a play, even if you don’t have Lin-Manuel Miranda’s talent, but it comes with a big financial risk. You put up a minimum of $5,000 to $10,000 — and up to $100,000 — and you could get rich quick if the show is a hit. If not, that money is gone for good. It’s a risky prospect since you never know what will resonate with an audience.
Investing In Diamonds
Take one look in a jewelry store and you’ll see just how expensive diamonds are. It might seem logical that their hefty price tag makes them a good investment, but you won’t get rich quick buying up these baubles. The variance in factors such as size, color, cut and clarity means you need the expertise to know exactly what you’re getting — or you might end up with stones worth much less than you paid for them. Diamonds also take years to appreciate and won’t turn a quick profit.
Falling For Get Rich Quick Ads on Facebook
You’re wondering how to get rich, and a Facebook ad pops up promising to teach you a foolproof method. Perfect timing, right? Wrong!
Patrick Algrim, who helps people with job searches, said, “One new scheme to pop up are Facebook Ads that try to teach you how to run Facebook Ads. They lure you in through the notion of finding out about how to start an agency or a website. Tell you that Facebook Ads are key. Then they have you spend thousands of dollars on Facebook Ads when you probably shouldn’t because you really aren’t qualified to run them properly, even after reading their guides.” It’s a new take on the classic envelope-stuffing scheme, where you paid for a guide that told you how to sell other people on the concept of envelope stuffing.
Investing In a Racehorse
Most people know that betting on horse races is a long shot, but how about trying a different strategy in the horse-racing industry? Buying shares in a racehorse. A horse that is successful on the track will yield money, and investors can earn even more if the horse is a stallion with a stellar race record. Money-making potential continues when the horse is put out to stud. The problem with investing in this venture is that you don’t know upfront whether the horse is fast enough to win. Even if it is, its career could be cut short by illness or injury, leaving you with an investment that doesn’t reach its potential.
Vanity Publishing in Search of a Bestseller
If you’re convinced that you’ve just written the next bestseller, sure to earn you millions of dollars, you’re a prime target for vanity and subsidy publishers. Rather than paying you for your book as a traditional publisher would, many of these companies want money for editing, publishing and marketing your work. They’ll tell you it’s an investment, and they might even imply that you’ll earn tons of money because your book is so great. In reality, they’re flattering you, hoping you’ll pay to produce the book even though self-published works are seldom commercial successes. While there’s no guarantee that your book will make money if it’s published by a traditional publisher, you don’t risk losing anything because the company takes the monetary gamble, not you.
Investing In Something New With Too Many Unknowns
If you want to get rich quick, you have to keep an eye out for the next big thing. You could make big profits if you choose wisely, but you could fail spectacularly if you overlook red flags. For example, investors are flocking to CBD oil because of its purported health benefits. Sellers make big claims, but most are not backed up by scientific evidence, and the Food and Drug Administration could crack down if those claims become too specific in terms of treating illness. Gray areas still remain in its legality, adding even more risk.
Listening To Bad Advice
If an acquaintance claims to have a foolproof idea for how to get rich quick, you might feel pressured to jump on the bandwagon — right now. This is a big red flag, according to Polakovic, the financial advisor.
“The next time your estranged college roommate contacts you and tells you how you’re going to triple your money in six months, it’s OK to ask the tough questions,” he said. “Don’t discount your own common sense or experience. Better to feel embarrassed asking something you don’t understand than to be out your investment thinking, ‘I thought that didn’t add up.’ There was a good phrase I learned in the Marine Corps: ‘Trust but verify.’”
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This article originally appeared on GOBankingRates.com: 28 Dumb Ways You Could Lose It All by Trying To Get Rich