Lesson P201.5 · Personal Finance 201: Build Wealth
Investing traps: hype, crypto, day trading and "guaranteed" returns
4-minute read · No dated figures
Photo: Mikhail Nilov / Pexels, Pexels License
The short answer
No. Crypto, day trading, options, trading on margin and meme stocks are speculation: bets on where a price goes next. Dave Ramsey calls crypto not a safe investment, and the SEC warns that day traders typically suffer severe losses. Never speculate with money for bills, the emergency fund or retirement. Treat any "guaranteed" high return as a red flag.
Investing and speculating are different things
| Investing | Speculating | |
|---|---|---|
| What you own | Pieces of many businesses, often through funds | One coin, one stock or one contract |
| How long | Years | Days, hours or minutes |
| Borrowed money or options | No | Often |
| What drives decisions | Your written plan | Headlines, posts and tips |
Respected money teachers agree on this part: invest for the long term, and don't bet money you need.
What the SEC and Ramsey warn
- Day trading. The SEC says day traders typically suffer severe losses in their first months, many never turn a profit, and many lose all their money and may end up in debt. It calls day trading a stressful, expensive full-time job.
- Margin. Margin means buying with money borrowed from your brokerage. The SEC warns you can lose more than you put in, and the firm can sell your holdings without asking you first.
- Options. The SEC warns you can lose your whole investment, and sometimes more.
- Hot stocks. The SEC warns that short-term trading in a jumpy market carries a significant risk of loss, and it urges extreme caution with tips from social media.
- Crypto. Ramsey's team calls it speculation, a step above gambling, and not a safe investment.
"Guaranteed" is the red flag
Real investments go up and down. The SEC tells investors to be highly suspicious of any "guaranteed" investment and to watch for high returns with little or no risk, returns that never dip, sellers without a license and trouble getting money out. The FTC is blunter: only scammers guarantee profits or big returns, and only scammers demand payment in crypto.
Example (made-up pitch): a guy at the supply house says his crypto group pays a guaranteed 2% a week. Two percent sounds small. Compounded over a year, it's about 180%. No honest investment promises that.
Many crypto scams start on social media or dating apps. The FTC's advice: never mix online dating and investment advice. If an online love interest wants you to send money or crypto so they can help you invest, it's a scam.
Your Move
Do this week
- Write your no-speculation rule in one sentence. Example: "I don't trade, buy crypto or bet with money for bills, the emergency fund, the Winter Fund or retirement."
- Add a wait rule: no money moves on the same day as a pitch, a post or a phone call. Sleep on it and look it up.
- Before you give anyone money to invest, look them up on BrokerCheck or the SEC's adviser search.
- Save the rule in your phone or tape it to the truck visor.
Log it: No-speculation rule written.
Common questions
Is crypto a good way to build wealth?
Dave Ramsey calls crypto not a safe investment, and his team calls it speculation. Respected teachers agree on building wealth through long-term, diversified investing, with no bets made with money you need.
Can you make a living day trading?
The SEC warns that day traders typically suffer severe losses in their first months and many never turn a profit. It says to risk only money you can afford to lose, never money for living expenses or retirement.
Someone I met online wants to help me invest. Is it real?
The FTC says that if an online love interest wants you to send money or crypto to invest, it's a scam. Stop sending money and report it to the FTC and the FBI's Internet Crime Complaint Center.
Watch out for
- Paid tip groups, trading courses and coaches. The SEC notes that day traders spend heavily on training and tips.
- Pressure to act fast. Scammers push you to pay right now.
- Requests to pay by crypto, gift card or wire transfer.
Free help
- FINRA: BrokerCheck
- SEC: Investment Adviser Public Disclosure
- FBI: Internet Crime Complaint Center (IC3), to report online investment fraud
- FTC: What to know about cryptocurrency and scams, with links for reporting a scam
- National Problem Gambling Helpline: call or text 1-800-MY-RESET (1-800-697-3738), free and confidential, if trading or betting has started to feel like gambling you can't stop (NCPG)
Free practice
Lesson check
5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.
This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.
Sources
- Ramsey Solutions: Is crypto a good investment?
- SEC: Day trading: your dollars at risk
- SEC: Margin: borrowing money to pay for stocks
- SEC, Investor.gov: Investor alert: thinking about investing in the latest hot stock?
- SEC, Investor.gov: Ponzi scheme
- SEC, Investor.gov: Check out your investment professional
- FINRA: About BrokerCheck
- FTC: What to know about cryptocurrency and scams
- FTC: What to know about romance scams
- NCPG: 1-800-MY-RESET