There have been some incredibly bad investments over the years.
But they did not always appear risky at the outset. Otherwise why would people invest?
Investors have lost money in forestry investments, carbon credits and offshore property schemes. Those investments can turn out well if the price is right and the risks are clear before people hand over their money.
But the investments went wrong because they were overpriced, complex, the risks were not made clear and they were illiquid. An illiquid investment is one that is hard to sell when an investor wants to exit quickly.
Some of the investments seemed dubious right from the start. In the 1990s thousands of investors lost money investing in ostrich farms. They were sold to British investors during the mad cow disease scare. The idea was that as beef became less popular ostrich would become a dinner table favourite. It did not work out that way.
New Zealand's Financial Markets Authority (FMC) says the investments are not inherently "toxic".
"There are always good and bad examples and some may carry more risk than others."
It is the way those particular ones were packaged and sold to investors that was the problem.
The FMA says it has not been made aware of any investments lately that it would consider "toxic".
But the types of issues often associated with investing can include:
The FMA has a page on its website that offers advice for people on the potential warning signs that people should look out for before handing over their money.
Some of the complaints the FMA has received in the past 12 months from investors include cold calling scams, investments that guarantee returns, and offers from unregulated, off shore foreign exchange traders.
"Consumers don't need to be drawn into dubious offers when they can participate in well-regulated, genuine offers made by firms operating in New Zealand," says the FMA.
It says there are plenty of choice in investment and financial services products that are provided by reliable firms and professionals.
"If an offer sounds too good to be true, then it probably is."
There is no way that the FMA or anyone else can ever guarantee that investments will be without risk. The return you earn on your investments is compensation for taking on risk.
But there are steps people can take to ensure the level of risk they are accepting is reasonable and to ensure their investments are performing.
The FMA says people should keep track of their investments, review their plans, and look out for the warning signs something is going wrong.
The warning signs include accounting problems, management problems and companies that over-promise and under-deliver.
The FMA also has a list of scams on its website.
The Ministry for Consumer Affairs offers advice as well.
3 News
