Updated: May 23, 2025
I’ve always read several people asking if investing in a certain company or a particular investment is okay in online forums and Facebook groups.
The goal of the person asking is to determine whether the company is legit and not a scam and whether the investment will yield high returns.
You won’t always read about these companies and investment opportunities in the news. But it doesn’t mean you can’t do some basic research online.
And as what many have already been doing, crowdsourcing information in social media is an efficient way to learn more about the legitimacy of the company and the investment they’re offering.
The first question I always ask
Whenever someone asks me about these companies or if someone is trying to offer me an investment, I always ask one question first.
“How old is the company?”
This question has been effective and useful as an initial test for investment crowdfunding companies, which has been appearing out of nowhere left and right recently. I encourage you to ask this whenever you encounter a new investment opportunity.
Generally, the company’s age directly relates to the investment’s risk. So, if the company is young, it is high-risk, prompting me to ask whether or not I’m willing to invest in a high-risk venture.
I want to give you a simpler and better understanding of why I am asking this question. Here’s how you can manage your risk after learning the year the investment company started.
On company age and investment risks
LESS THAN 2 YEARS OLD
If the company is less than two years old, then it’s an ultra-high-risk investment. So, in this case, I should only invest money that I can afford to lose.
This is exclusively just for my “extra money” — cash that I have that has no solid purpose and idly sitting in my bank account, waiting to be spent.
If I don’t have that extra money, then I simply pass up on this opportunity. I don’t need to do further research anymore, and just move on.
However, if I have that extra money, I go ahead with my due diligence next. This is usually scam territory, so I’m always careful before investing and ensuring everything about them is legit before putting my money on them.
2-5 YEARS OLD
If the company is more than two years but less than five years old, then it’s a high-risk investment. In this case, aside from my “extra money,” I can also invest my funds, which I reserve for unimportant financial goals.
Let’s say that I’m planning to go on a 2-week European tour a few years from now, and I’ve already saved some money for it. If I encounter an investment opportunity from a company that’s 2-5 years old, then I’m open to putting my travel fund there.
The worst-case scenario is losing all my money, which won’t be a financial disaster because it’s just for my vacation goal.
However, if I’m saving up for my child’s college education, which is, of course, an important financial goal, then I will not invest my money in it because the company is still young, and the risk is unacceptable to me.
5-10 YEARS OLD
If the company is more than five years but less than ten years old, then it’s a relatively moderate-risk investment. The company is less likely to be a scam, so I’m more confident that my money is safe with them.
Regarding these companies, I’d be willing to invest the funds I have for my long-term goals. Or simply, I plan to spend or use money far into the future, around five or more years from today.
Why? Because if the worst-case scenario happens and I lose my money, then I will most likely still have enough time to work, earn, and rebuild my fund.
MORE THAN 10 YEARS OLD
Finally, if a company has been operating for more than ten years, I will feel relatively safe investing with them. There’s a low chance that you’ll lose your money (but remember that it can still happen).
Given their stability and historical performance, I’m confident about putting money into whatever investment opportunity that they have to offer.
But, it’s still important to do due diligence, determine their legitimacy, and find current investors to ask about their investing experience with the company.
Asking the age is just the first step.
Using the company’s age to manage your risk is just the first step when choosing investments. It is a great way to determine if you should just simply back out or go ahead and get more details immediately.
The decision mainly depends on the type of funds that you have. Is it just extra cash? Or is it for a specific financial goal? Remember never to take on risks that you can’t manage.
In case you’re interested in pursuing the opportunity, the next step is to do due diligence. Ensure the company is legally registered and has a license to solicit investments.
This is particularly vital for companies that have no mention in the news. It may be exciting to discover a new and great investment opportunity before others, but be sure that you’re not simply being fooled into putting money into a clever scam.
Moreover, it’s worth mentioning that you should never invest in something that you don’t understand. Learn how exactly your money will grow, and see if their financial projections and stated potential returns are possible.
And finally, even if everything checks out, your financial goals will still dictate whether you should invest because investments are simply vehicles that you use to bring you to your destination.
Always run the numbers and see if the investment does have the potential to help you achieve your financial goals. And if you’re unsure how this is done, then perhaps you can seek the help of a financial planner or investment adviser.
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Spot on advise. This article reminds me of why I almost never touch penny stocks in the US OTC (Over The Counter) market. I will read a glorious piece or promotional article. A few new ideas or concepts catch my interest enough to add the stock to a watch list I keep for these types of underlying. What I have learned over time: no matter how great I think the company or idea is, that does not mean the market or other investors will agree with me.
To make this short, I generally work trades on large cap dividend paying stocks when they pull back. We usually sell puts to enter a trade and if assigned the underlying, we overwrite with call options for income. We will also do a higher volatility index ETF like IWM because the risk is so spread out over many stocks but IWM as well as it’s option are liquid.