Carbon’s fifth investment principle: Investments that appear too good to be true always are.

Returns of 11%, 15%, or even 26% last year! And from lower-risk property investment! You don’t have to spend much time on Google to find property investments enticing individuals to part with their savings in search of high returns with apparently relatively low risk.

But, of course, not all is at it seems, and we firmly believe that risk and return are related; if you are being offered double-digit returns, it comes with plenty of risk – perhaps risk simply due to fluctuations in the values of the investments, perhaps due to currency movements, or perhaps because what’s being offered is actually a scam – individuals with pension funds are being targeted for this sort of thing to such an extent that the Autumn Statement announced a consultation to put measures in place to increase the protection for individuals and to curb cold calling.

Our fifth investment principle is that investments that appear too good to be true always are. We all need to keep that in mind when considering how we might invest our capital. History is littered with examples of investments promising to beat that risk/return relationship – funds offering a positive return no matter what the market conditions (see hedge funds and so-called absolute return funds), and funds offering returns where the default risk was minimal (sub-prime mortgage loans anyone?). So before you invest, take a step back and see if it really stacks up.

This blog post was written by Richard Wadsworth, financial planner at Carbon. You can view Richard’s profile here or contact him via email on richard.wadsworth@carbonfinancial.co.uk