Investments That Are Too Good to Be True?

A brilliant investment idea?

“There’s a sucker born every minute.”
–P.T. Barnum

I enjoy messing with scammers. I like to select some scam e-mails that I receive from “Nigerian princes” and “oil barons” and “SAEREAGEANT MEKE SMEETH” and string them along to believe that they’re going to actually get money out of me. I figure that if they’re going on wild fantasies and goose chases to the Western Union with fake receipts, then they’ll have that much less time to scam Grandma. (Note: if you’d like to learn how to do this, go to to learn more).

Yet, there are people who fall for these schemes and other too-good-to-be-true investments (Madoff Ponzi scheme? The great idea for a northern Bhutanese cricket restaurant that your 8th cousin emerged from the blue with? No offense intended to Bhutanese, who are the happiest people in the world). Furthermore, they make themselves believe that these are legitimate, viable opportunities despite their brains providing a clear and present signal that they are just what they seem – too good to be true.

How the Brain Forewarns You About Outlandish Investments

According to the University of Iowa’s Erik Asp, Kenneth Manziel, and others a part of the brain called the ventromedial prefrontal cortex creates a “false tag” on an idea when it is presented with it. According to their research, we actually really do believe everything that we hear at first, and it’s up to the prefrontal cortex to sort out the lies from the truth. If you’ve ever heard the phrase “if it seems to good to be true, then it probably is,” you’re seeing the prefrontal cortex in action in the first part of that phrase. The prefrontal cortex is what makes you think that something seems too good to be true.

As we get older, the ability of our prefrontal cortex to tag what we see as unbelievable lessens. As we age, it takes us longer and longer to come to what was one the snap conclusion of “naw…that can’t be true!”

Furthermore, our prefrontal cortex is where our rational mind lives. It’s not the realm of the limbic system, where Monkey Brain likes to play. Monkey Brain wants immediate gratification and loves get rich quick schemes. As a result, when he sees an investment which the prefrontal cortex might tag as outlandish, he’s going to come up with rationalizations for why it’s a good investment.

YOU: “I don’t know about this cricket restaurant. It doesn’t seem like a great idea.”


YOU: “Do you really think that there’s a market for cricket restaurants?”


So, particularly as you get older, you’re going to be facing a war against incredulity on two fronts: the loss of zippiness from your prefrontal cortex and Monkey Brain’s relentless assault on your good senses against get-rich-quick investments.

How do you fight this battle?

  • Intentionally and consciously doubt what you hear at first. Remember, your brain’s first reaction to every piece of stimulus it receives is to believe it’s true. It’s up to the prefrontal cortex to create the flags which mark input as false. While it usually does this automatically, you can help it along by intentionally being skeptical. That isn’t to say that you should be intentionally contrarian and be that person that says “No, it’s orange!” when someone says “the sky is blue,” but a little dose of skepticism goes a long way.
  • Work backwards. In order for you to get the return on that fantastic “investment” that people are promising, start from the end (you getting the wad of cash) and work backwards to develop the reasonable scenario for how you could get from the present to the end state. If you can’t come up with a viable and realistic scenario for how you get to the promised land (6 million customers to the cricket restaurant or the son of a rich Nigerian prince actually coming to your front door – of all people – with a trunk full of money), then chances are, it’s not a good investment and it’s too good to be true.

For my married male readers, you’ll know what this reaction is every time you see it in your wife when she says “I don’t know about this…” as you elaborate on some bright idea that you’ve had.

Use those “I don’t know about this” moments as your indicator that an investment or an opportunity is too good to be true.

What was the most “too good to be true” investment opportunity you’ve ever heard about? Tell us in the comments below!

Published by

Jason Hull was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business. He held a CFP certification from 2015 - 2021. You can read more about him in the About Page. If you live in Johnson County, Texas or the surrounding areas, he and his wife are cash buyers of Johnson County, Texas houses.

3 thoughts on “Investments That Are Too Good to Be True?

  1. Whole life insurance! A 4% guaranteed return year after year! Except that when you actually run the numbers, after 40 years that guaranteed 4% return is only about 0.7%, and for most of that time it’s negative. I’ve definitely learned to approach this stuff with a healthy dose of skepticism, which I think makes me sometimes come off as a pessimist. I can understand that sentiment, but I just think I’m more of a realist. If someone’s trying to sell you something, it might be a good product but you need to convince yourself of that based on objective evidence, not the passion of their sales pitch.

    1. Hah! Nailed it! I have an article coming out (in the undefined, indefinite future) running a historical aftcast horse racing indexed universal life insurance versus term and invest the rest. Two guesses which one wins the vast majority of the time.

      There is a case for whole life, but certainly not the one the life insurance salesman wants you to believe. I have seen one client so far where a permanent life insurance policy was appropriate. The ratio of times when it’s applicable to times when it’s not applicable is quite low.

  2. “There’s a sucker born every minute.” –P.T. Barnum

    I am not proud to say after losing $27,000 I am one of them. Never follow any one blindly. Do your own research.

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