Questions to Ask About Investing
For anyone about to put money into a stock, a fund, a real estate deal or an opportunity someone has pitched to them, with no advisor in the room. The questions follow the order of the decision: what it is, what it costs, the risks, how you get out, checks on the seller, and the ones to ask yourself. Each has a note on what a sound or a worrying answer sounds like; rules, protections and tax differ by country, so ask how each works where you live.
The questions
Each question, and why to ask it
What it is
What exactly am I buying, and can you explain it in two or three plain sentences?
Why ask it
A share is a piece of a company, a bond is a loan, a fund is a basket of either, and an 'opportunity' may be nothing more than a contract with the person pitching it. If the explanation still needs jargon on the second attempt, treat that as your answer. Passing on something you do not understand costs you nothing.
How does this investment make money, and where would my return actually come from?
Why ask it
Rent, interest, company profits and a higher price from a later buyer are the real sources, and a sound answer names one of them. Be wary when the seller can describe the payout in detail and the business behind it only vaguely. Returns paid out of newer investors' money are how a Ponzi scheme works.
What return should I expect, and what is that figure based on?
Why ask it
A careful answer is a range, includes the bad end and says whether it is after charges. Ask whether the number is a past result or a projection, and over which years. A single high, steady figure with no bad years in it is the one to distrust most.
Does any of my money or the return come with a guarantee, and who stands behind it?
Why ask it
A guarantee is worth exactly as much as whoever gives it, so get the name of the company or institution and find the wording in the contract. Then ask whether any government-backed protection applies where you live, and confirm it with the body that provides it. 'It cannot lose' said aloud, with nothing on paper, is a reason to stop.
How long is the track record, and can I see the results year by year?
Why ask it
Past results say nothing certain about the next ones, but a year-by-year table shows how rough the ride has been, which an average hides. For something new, 'back-tested' or 'simulated' figures are a model of what might have happened, not a history. The fair comparison is the market it invests in over the same years, not a savings account.
How and when is the income paid, and has it ever been cut?
Why ask it
Dividends, interest and rent distributions can all be reduced or stopped, so ask for the payment history. Then ask whether payouts come from what the investment earns or from investors' capital. Being paid out of your own capital is just your money coming back with a charge taken off.
Who runs it, and what happened to the things they ran before?
Why ask it
For a fund that means the manager and the firm; for a real estate deal or a private offering it means named people and their earlier projects. Write the names down and search each one with the words 'complaint', 'lawsuit' and 'fraud' when you get home. A promoter who is vague about their own past usually has a reason.
Have you, or the people running this, put your own money into it?
Why ask it
The answer means most with a figure attached and on the same terms as yours: a promoter holding free founder shares is not carrying your risk. Someone on commission who owns none of it is not ruled out, but you are hearing from a salesperson and not a fellow investor. Count a yes as one point in favor and no more, since promoters have lost their own savings in schemes they believed in.
Can I have the official documents, such as the prospectus, fact sheet or offering memorandum?
Why ask it
Regulated products normally come with a standard document that sets out the charges and the risks, though its name differs from country to country. Read the risk section and the fee table before you read the brochure. If all that exists is a slide deck and a bank transfer form, ask why.
Why this instead of a cheap fund that tracks the whole market?
Why ask it
A broad, low-cost fund is the plain yardstick, so anything costlier or more complicated should be able to say what it adds. Reasons that hold up are specific: income now, a fixed end date, an asset you cannot reach through a fund. 'Higher returns' is not a reason, it is the claim you are trying to test.
Costs
What are all the charges, and what do they add up to in dollars on the amount I would put in?
Why ask it
Go down the list out loud: entry charge, yearly management charge, platform or account fee, trading costs, performance fee, exit charge. Then have them work the total out on your sum over ten years, because a percentage that sounds small is a large number by then. If the seller cannot produce one figure, the charges table in the documents should.
Is there a charge to get in, and how much of my money is actually invested on day one?
Why ask it
With a sales or entry charge, part of what you hand over never gets invested. If 10,000 goes in and 9,500 goes to work, the investment has to earn the gap back before you are level. The same fund is sometimes sold through another route without that charge, so look before you agree to it.
What is the ongoing yearly charge, and is it taken whether or not the investment does well?
Why ask it
It usually comes out of the investment before you see the return, which is why nobody feels it. Compare the figure with two similar products: a gap of one percentage point repeats every year you hold. If it will never appear as a line on your statement, find out where you can look it up.
Is there a performance fee, and how exactly is it worked out?
Why ask it
Three details matter: the return it has to beat before the fee starts, whether earlier losses must be made back first, and whether it is charged on gains that exist only on paper. A fee that shares the good years and none of the bad ones pays the manager to take risks with your money.
What does it cost each time I buy or sell?
Why ask it
Commission or a trading fee is the visible part. The gap between the buying price and the selling price is a cost as well, and it can be wide on a thinly traded stock or fund. A flat fee matters most if you plan to add small amounts each month, where it can swallow a noticeable slice of every purchase.
How are you paid if I invest, and would you be paid differently if I chose something else?
Why ask it
Commission is not a scandal, but it tells you whether you are hearing advice or a sales pitch. The good answer is a figure, given without fuss. 'It costs you nothing' means the product pays the seller, and the product gets that money from your charges.
How will this be taxed, both on the income and when I sell?
Why ask it
Tax depends on the country, the kind of account and your own position, so treat the seller's answer as a starting point and not as advice. Two things to pin down are whether you owe tax on income as it is paid or only when you sell, and what paperwork you will be sent for your return. Any claim of 'tax-free' is worth confirming with the tax authority's own guidance or an accountant before you rely on it.
Risks
What is the worst case: could I lose part of it, all of it, or more than I put in?
Why ask it
Plenty of investments can go to zero. Anything involving borrowing, margin or an obligation to pay in more later can leave you owing money on top, so ask directly and have them show you the line in the terms. Then picture the worst case as a sum of money and decide whether you could live with it.
What are the three biggest risks here, starting with the most likely?
Why ask it
A useful answer is specific to this investment: the tenant leaves, the loan has to be refinanced at a higher rate, one product stops selling. Compare what you are told with the risk section of the documents, which is written by lawyers and tends to be franker. If you hear that there is very little risk and the return on offer is high, one of those two statements is wrong.
What would have to happen for this to do well, and what would make it do badly?
Why ask it
This turns a pitch into cause and effect: interest rates, house prices, one company's sales. Someone who knows the product can describe the bad version as fluently as the good one. If only the good version comes out, either they do not understand it or they are hoping you will not ask.
How far has it fallen in a bad stretch, and how long did it take to come back?
Why ask it
Turn the answer into your own money: a fall of a third on 15,000 is 5,000 gone, at least on paper. Then be honest about whether you would have held on through the months or years it took to recover. If the product has never been through a bad stretch, ask how similar ones did in the last one.
Does this investment use borrowed money, and what happens if the lender wants it back?
Why ask it
Borrowing makes the gains bigger and the losses bigger. Real estate deals and some funds borrow against what they own, so ask how much, at what rate, whether the rate is fixed and when the loan has to be renewed. The worrying case is a loan that falls due when prices are down, because that can force a sale at the worst time.
How much of the result depends on one company, one building or one person?
Why ask it
A fund spread across hundreds of holdings survives one failure. A single development, a single startup or a strategy that lives in one trader's head does not. That is not a reason to say no, but it is a reason to keep the amount small.
Would my money be in another currency or under another country's rules?
Why ask it
An overseas property or fund can do well in its own currency and still lose you money on the way home. The other half of the question is which regulator and which courts would handle a complaint. Chasing money across a border is slow and expensive, and promoters of bad schemes know it.
What happens to my investment if the company running it goes out of business?
Why ask it
There are two very different answers. Either the assets are held apart from the firm, in your name or with a separate custodian, and should survive it, or you are one more creditor waiting in line. Once you know which, check whether an investor protection fund where you live covers this kind of product, and up to what limit.
Who would you tell not to put money into this?
Why ask it
An honest seller has a list ready: someone who needs the money within a few years, someone with no cash buffer, someone who would lose sleep over a fall. Check yourself against it. 'It suits everyone' is what a person says when they are paid per sale.
Getting out
How do I get my money out, and how long is it from asking to cash in my bank account?
Why ask it
Listed stocks and everyday funds normally sell within days. Property, a stake in a private company or a fixed-term bond can take months, or cannot be sold at all until the term ends. Have the seller go through the steps one by one, then find the same steps in the documents.
How many years is this meant to be held, even if I am free to sell sooner?
Why ask it
Stocks and stock funds can sit below what you paid for years at a time, so a seller who knows the product will give a holding period in years, not months. Set that against the date you need the money. If the two do not fit, being allowed to sell is little comfort: you would be selling at whatever the price happens to be that month.
Is there a minimum term or lock-in, and what would it cost to leave early in each year?
Why ask it
Exit penalties often shrink year by year, so ask for the schedule and not a single figure. A long lock-in is fine when you are paid for it and will not need the money. It becomes a problem when you first learn about it on the day you need to withdraw.
If I wanted to sell, who would buy it from me?
Why ask it
For a listed stock the answer is the market, any working day. For a unit in a development, shares in a private company or a collectible there may be no ready buyer at all. A promise that the promoter will buy it back depends on the promoter still having the money, so ask how many investors have actually sold, and at what price.
Can withdrawals be suspended or limited, and has that ever happened?
Why ask it
Funds that hold things that are slow to sell often keep the right to pause withdrawals when many investors want out at once. It is normally in the terms, and it tends to come into play at exactly the moment you would want your money. One past suspension need not rule a product out, but it should cap how much of your accessible savings you keep there.
While I hold it, who decides what it is worth, and how often?
Why ask it
A listed price is set by buyers and sellers every day. A valuation produced once a year by the people who sold it to you is an opinion, and a kind one. For anything unlisted, an independent valuer whose latest report you can read is the least to expect, because that figure is what any sale or buy-back will be based on.
Can I start with a small amount and make a test withdrawal before I add more?
Why ask it
Starting small lets you see the paperwork, the statements and a withdrawal before much is at stake. Some scams pay the first small withdrawal promptly to win a bigger deposit, so a smooth test is a good sign and no more than that. Be wary of a high minimum that comes with pressure to 'qualify' for a better tier.
Seller checks
Are you licensed or registered to sell investments, and where can I check that myself?
Why ask it
In most countries anyone selling investments has to be authorized, and the regulator keeps a register the public can search. Take the name and number, then find the regulator's site yourself instead of following a link you are sent. Fraudsters copy the names of real firms, so call back on the phone number the register shows.
Is the investment itself registered or regulated, and with which body?
Why ask it
An authorized seller and a regulated product are two separate things, and it is possible to have one without the other. Some offerings are lawfully exempt, often because they are limited to wealthy or experienced investors, so ask which exemption applies and why you qualify. An exempt or unregulated product usually comes with fewer protections, and which ones you would lose depends on where you live.
Once I pay, who holds my money, and whose name is the investment recorded in?
Why ask it
The ordinary arrangement is payment to a regulated firm or custodian, with a record in your own name that you can view without asking the seller. Stop if you are asked to pay an individual's personal account, a company with a different name, or in crypto, gift cards or cash. Legitimate investments do not need those routes.
How did you get my details, and why is this being offered to me?
Why ask it
An offer that arrives by cold call, social media, a dating app or a messaging group needs more checking, not less, and some countries ban cold calls about certain products altogether. The same goes for one that comes through your church, club or family. Fraud travels well along lines of trust, and the friend recommending it may be a victim who has not found out yet.
Why does this have to be decided today?
Why ask it
Real offers do close, but the closing date is printed in the documents and was not invented on the phone. 'Only three places left' and a bonus for paying now are pressure, which regulators list among the most common signs of a scam. Say that you never decide on the day, and watch what happens to the seller's manner.
Can I take the paperwork away and show it to an accountant, a lawyer or someone I trust?
Why ask it
The right answer is 'please do'. Requests for secrecy, such as 'do not mention this to your bank' or 'your family will not understand it', protect nobody but the seller. If your bank asks what a transfer is for, tell the truth: its staff have seen these patterns before.
Are the accounts audited, and by which firm?
Why ask it
An independent auditor you can look up is a basic check that the assets exist. Ask for the latest audited accounts and confirm with the audit firm that it really does act for them. A one-person audit practice nobody has heard of, signing off a scheme that claims to hold millions, deserves a pause.
What can I check for myself, without taking your word for it?
Why ask it
Testimonials and screenshots of gains are easy to fake, and early investors in a Ponzi scheme really are paid, so a happy friend proves little. What can be checked independently is duller and better: the company's registration, who owns the property on the public record, the regulator's register and its warning list. A seller with nothing to hide will tell you where to look.
Would I be paid for bringing in other investors?
Why ask it
When the money to be made comes mainly from recruiting people, and not from something being sold or earned, the structure is a pyramid and it stops paying when recruitment slows. A small refer-a-friend bonus from a mainstream broker is a different thing. The test is whether recruiting is a perk or the business.
Will you put everything you have told me today in writing?
Why ask it
Projected returns, buy-back promises and 'there is no risk' count for little in a dispute if they were only said on the phone. Ask for an email that repeats the figures. When the written version turns out vaguer than the conversation, believe the written version.
If we fell out over this, who outside your firm would hear my complaint?
Why ask it
Start with the firm's own complaints procedure and how long it gives itself to reply. Then find out whether an ombudsman, an arbitration panel or the regulator takes disputes where you live, and whether the contract commits you to one of them. With a seller based abroad, or one with no complaints process at all, a lawyer may be your only route.
Ask yourself
What is this money for, and when will I need it back?
Why ask it
A down payment on a house in two years and a retirement in twenty-five call for very different investments, because the first has no time to recover from a fall. Write the purpose and the date down before you look at any product. If you cannot name either, that is the thing to settle first.
Do I have a cash buffer, and am I carrying any expensive debt?
Why ask it
A few months of bills in cash is what stops you selling an investment at a bad moment to fix the car. Paying off a credit card that charges a high rate is a certain saving, and no investment can offer certainty. If either is missing, it is worth working out what sorting it would do for you before you compare products.
How much of my total savings would this be?
Why ask it
The same product can be sensible at a twentieth of your savings and reckless at half. Fix the proportion before the meeting, because a pitch is built to raise it. For a single pitched investment, a rough test is whether losing all of it would change your plans: if it would, the amount is too large for one bet.
What do I already own, and would this add something different or more of the same?
Why ask it
A workplace retirement plan often holds a broad spread of shares already, so a technology fund on top may double a bet you did not know you had. List everything first, including the plan at work and any property. Then see whether the new thing fills a gap or thickens a pile.
If this fell by a third next year, what would I actually do?
Why ask it
Answer from memory, not from principle: think of the last time you saw a balance drop and what you did. If you would sell, either the amount is too large or the investment swings more than you can stand, and it is cheaper to find that out now. Selling after a fall is what turns a loss on paper into a real one.
Could I explain this investment to a friend without the brochure?
Why ask it
Try it aloud on someone who was not at the meeting: where the return comes from, what it costs, how you would get out. Wherever you stall is a question to take back to the seller. If the friend's first question is one you cannot answer either, you have found the next one to ask.
Am I buying this because it fits my plan, or because other people seem to be getting rich from it?
Why ask it
Trace where you first heard of it: a goal you wrote down, or a friend's screenshot, a headline, a group chat. When everybody is talking about how far something has risen, that rise is in the past and the price you would pay already includes it. If envy or hurry is doing the choosing, wait a month and see whether you still want it.
Have I used the tax-sheltered accounts open to me before buying this?
Why ask it
Many countries offer retirement or savings accounts with tax advantages, and some employers add to what you pay in. The names, limits and rules differ by country and by employer, so ask your plan administrator or read the tax authority's guidance. A pitched product held outside those accounts has to beat an ordinary fund held inside one.
What would make me sell, and how often will I look at it?
Why ask it
Set the reasons in advance: the goal is reached, you need the money, or the reason you bought has stopped being true. Write them on the same page as the purchase. Checking the price every day mostly produces the urge to do something, so pick an interval, perhaps a few times a year, and keep to it.
Is this decision large enough to pay for an hour of independent advice?
Why ask it
For a big sum, moving a retirement account or anything you still cannot explain, a one-off fee to someone paid by you and not by the product can be cheap insurance. Ask how they are paid before you book. Bring this page and the documents, and ask them to answer what the seller could not.
How to weigh up an investment before you pay
Practical guidance for the conversation itself
Before the conversation
Set your limit at home
Decide the most you would put in, and what share of your savings that is, before anyone starts talking. A pitch is designed to move that number upward, and a figure written down beforehand is much harder to shift than one you are working out in the room.
Look up the seller first
Search the regulator's register and its warning list for the firm and the person, using a site address you found yourself. Ten minutes of this settles more than an hour of conversation, and if they are not on the register you can skip the meeting.
Read the fee table and the risk section
Ask for the documents ahead of time and read those two parts before anything else. They are the least polished pages and the most informative ones, and they show which questions on this list the brochure was hoping to avoid.
Pick your questions
You will not need all of them. For a mainstream fund bought through a regulated platform, What it is, Costs and Ask yourself do most of the work. For anything pitched to you personally, start with Seller checks, and do not move on to the rest until the register and the custody answers hold up.
While you are asking
Ask for dollars, not percentages
Charges, falls and returns all sound milder as percentages. Have each one worked out on the amount you would actually invest, and write the figures down as you go.
Say the answer back
'So if I needed the money in year two I would lose the last six months of interest, is that right?' Repeating an answer in your own words catches misunderstandings, and it makes a slippery answer firm up or fall apart.
Let 'I will find out' be a good answer
Nobody carries every detail in their head, and a seller who promises to check and then does is showing you how they will behave later. A confident answer that turns out to be wrong is worse than an honest gap.
Never pay in the meeting
Take the documents home and sleep on it, however well the conversation went. The decision is the same size tomorrow, and anything that has changed by then, such as the price, the bonus or the seller's patience, tells you something.
Testing it against the plain alternative
Line up the costs
Put the total yearly charges of this product next to those of a broad, low-cost fund, both on your amount. The more expensive one has to earn the difference back every year before it is even level, so ask what it does to deserve that.
Run the bad year on your number
Take the worst fall you were told about and apply it to your sum. If the figure makes your stomach turn, halve the amount and run it again until it does not.
Match the exit to your date
Hold the lock-in, the exit charges and the time it takes to sell against the date you wrote down for needing the money. An investment you cannot leave before that date is the wrong one, whatever it pays.
Check the claims you can check
Pick three things the seller said that can be verified without them: a registration number, an audit firm, the ownership of a building. If all three stand up, the rest of what you heard gains weight. If one does not, nothing else they said matters.
Reasons to walk away
High return, little risk
Return is the payment for taking risk, so an offer of a lot of one with none of the other is describing something that does not exist. Steady monthly gains with no down months belong in the same group.
Pressure and secrecy
A deadline, a bonus for acting now, or a request to keep the deal from your bank or family all serve the seller. An investment that is good on Friday is good on Monday, and one that cannot survive a second opinion was not good.
Money sent to the wrong place
Payment to a personal account, to a company with a different name, overseas for no clear reason, or in crypto or gift cards puts your money somewhere it is very hard to trace or recover.
A fee to get your own money back
If a withdrawal suddenly needs a 'tax', a 'release fee' or one more deposit first, stop paying. That pattern, and any later call offering to recover your losses for an upfront fee, is a common second stage of the same fraud. Tell your bank, and report it to the regulator or fraud line where you live.