Don’t Get Fooled Again: Assessing a Friend’s Big Investment Idea

Picture the scene: you’re at a social gathering, perhaps a dinner party or a barbecue. After the small talk is exhausted, someone brings up their latest investment enthusiasm—maybe a new cryptocurrency, or their friend’s new venture in distressed real estate tokens—and they talk excitedly about the stellar gains to be made with minimal risk because (all together now) “this time it’s different.”

Then someone remembers you work in something to do with money. They turn to you and ask: “What do you think? Is it a good investment?”

I’ve had this conversation many times. And I’ve learned the hard way that people aren’t looking for a lecture or an education. They’re looking for affirmation or endorsement. So I usually say something like this:

“I’m sure you’ve done your due diligence, but for me personally, I like my financial life to be uncomplicated, so whenever I’m evaluating something new, I ask myself four questions. If I can’t answer them clearly, I don’t touch it.”

My four questions are:

• Will I get my money back?
• When will I get my money back?
• What are you going to pay me for the use of my money?
• How will you do that, exactly?

These aren’t technical questions. They’re basic, but they cut through hype and FOMO (fear of missing out). Importantly, they allow you to point to a few important definitions that can get lost in the noise. Like, for instance, understanding the differences between an asset (pays you), a liability (costs you), an investment (owes you), a speculation (tempts you) and a scam (fools you).

If I’m going to let other people use my money, I want to understand how they are going to pay me for it and at what risk to my capital. I want to use the basic asset classes that share similar characteristics and that can be expected to behave in similar ways in the market. Cash, property, bonds and equities are the four traditional ones. They each have different risk profiles, income streams and liquidity—but they all meet the basic test of being assets: you are owed a return.

Cash

Pays you interest. It’s liquid. It’s insured up to a point. You know how and when you’ll get it back.

Property

Pays you rent. The value may fluctuate, and it may take time to sell, but everyone can understand how it works.

Bonds

Pay you interest (a coupon) and your capital back at maturity—assuming the issuer is sound.

Equities

Give you a share of company profits via dividends and capital growth. The risk is higher, but so is the potential reward.

These are real assets. You know broadly what you’re being paid, and you know how the return is generated.

Now try applying the same questions to something like your friend’s latest investment fad.

• Will I get my money back? Maybe—if I can sell at a higher price.
• When will I get my money back? Depends entirely on market conditions and sentiment.
• What are you going to pay me for the use of my money? Nothing. There’s no rent, no yield, no income stream.
• How will you do that, exactly? There’s no mechanism. A profit depends on someone else paying more.

This is speculation: putting money into something not because it generates income, but because you hope to sell it for more later. Speculation isn’t necessarily wrong—but it’s not the same as investing. There’s no inherent cash flow and no guarantee of return. It’s not an asset. It’s a bet. And you’re relying not on the thing itself to produce value but on finding someone else, the so-called “greater fool,” willing to pay more for it than you paid.

If speculation is a grey area, scams are black and white. They often come wrapped in complexity, secrecy or urgency, and they fail the four-question test completely.

They tend to promise high, consistent returns. They discourage questions. They might hint at exclusivity—“you’re lucky to be invited”—but when you dig deeper, the business model is missing. There’s no audited data. No regulated oversight. No credible pathway to delivering what’s promised.

Think of Ponzi schemes, like the one operated by Bernie Madoff. For years, investors believed they were earning high and steady returns. In reality, they were being paid with new investors’ money until the whole thing collapsed.

If you can’t explain how an investment generates its return, or if the explanation doesn’t make sense, then it probably isn’t an investment at all. And the more urgent or secretive it feels, the more likely it is to be a scam.

Ultimately, my simple approach to assessing these offerings doesn’t require a Chartered Financial Analyst qualification or a finance degree. You just need to ask the right questions—and insist on straight answers: Will I get my money back? When will I get my money back? What are you going to pay me for the use of my money? How will you do that, exactly?

If you can’t answer those—or if the person pitching the idea can’t—you owe it to yourself to walk away. Because good investing isn’t about being clever. It’s about being clear. If it’s not an asset, don’t treat it like one. If you stick to that principle, hopefully you won’t get fooled again.