2

Somebody in my family is proposing an investment opportunity.

The deal is as follows. You put 20K and he is going to use it to sow rice, the return depends on the price per kg of rice but he tells me that the average ROI is about 15% in 4 months. I guess some risks are bad wheater, or something bad happening to the rice, etc. He is just starting with this business this month.

I have 40K on a savings account. I don't have any car or credit card payments. My income is 70K/year as a Software Developer. I'm 25 single.

My question is, should I invest 20K in this medium-risk business? I want to keep it compounding over several years. I am afraid that the lack of knowledge in that industry would play against me.

18
  • 2
    How much experience does your family member have growing rice? – RonJohn Feb 22 at 23:49
  • 8
    I'd be highly dubious of any investment that averaged a 15% return in 4 months. That would be a roughly 75% annual gain which is not consistent with the idea that this is a "medium-risk business". That's very much in the realm of the "too good to be true" returns that are the hallmark of a scam. If you could make that sort of return growing rice, something that tens of millions of people do every year and that they have been doing for thousands of years, rice farmers would dominate the Forbes list of richest people. – Justin Cave Feb 23 at 0:15
  • 5
    The important questions to ask yourself are, (1) "how would I be financially affected if I lost all that money due to a bad harvest?" and (2) "how would family relations be affected if he is lazy or incompetent or is scamming you?" – RonJohn Feb 23 at 1:40
  • 2
    @RonJohn 15% of 20K is 3000, not 1500, right? – nanoman Feb 23 at 1:57
  • 3
    @H2ONaCl Most crops are seasonal, rice is typically planted in spring and harvested in fall. Likely the return from one growing season is your annual return. – Hart CO Feb 23 at 5:02
3

Since you are not familiar with rice farming, you should ask your relative more questions and do some research to check if the numbers are reasonable.

You want to understand the business plan. In particular: What exactly is the 20K to be spent on? Whose land and labor are being used and how are they valued/compensated? What does your relative get out of the deal?

If you decide to proceed, make a written contract so the terms are clear.

2

No, you shouldn't. Reasons are:

  • A 15% ROI in 4 months is likely either simply a wrong guess by your relative, willful deceit or attached with significant, unspoken of risk. This turns your investment into gambling. You should not gamble with 50% of your networth, even if you might be able to replace it comparably quickly with your current salary.
  • Don't mix family and investments. What happens if you won't get the expected return? What if you don't get anything back? Will there be resentment? Will you sue (if you have a contract)? This might lead to uncomfortable family gatherings in the future and might force other members of your family to pick sides.
  • You lack knowledge in the industry (and so does he if he is just starting this month). Don't invest in something you don't understand sufficiently. If the investment unexpectedly does work out well for you, you might mistakenly assume it's because of your skills rather than sheer luck, potentially leading to further bad decisions in the future.
  • If it would be a great decision, the person should be able to acquire 20k on their own from a bank. If they cannot get 20k from a bank in the current environment, you should second guess their business acumen as reflected in their personal finances.

If you still decide to do it, do get a contract as pointed out by nanoman.

4
  • 1
    "Family" is quite often the source of initial business capital. – RonJohn Feb 23 at 13:01
  • 1
    @RonJohn Money is also quite often the source of decade long conflicts within families. If you cannot acquire sufficient funds to finance a business but must rely on family, it's in my opinion too risky an investment for it to compound over several years. Now if we talk about gifting the money to family (or the equivalent of gifting given the risks) with no expectations on return, it's of course a different matter. I would still advice against gifting 50% of your networth to anyone unless they are in dire straits. – R.K. Feb 23 at 13:31
  • 1
    Yup, it can. And also, it can be a great source of seed money. – RonJohn Feb 23 at 13:50
  • 1
    For goodness sake. It is a risible scam. No point confusing the issue with abstractions. – Fattie Feb 23 at 16:48
2
  1. It's a complete, total, scam

  2. If you truly want to try something like this, try a small amount. Based on your outstanding financial condition as described, you could try $1,000. If the system is so fantastic, you'll make money on that. ABSOLUTELY DO NOT PUT IN MORE THAN $1,000. IF THE MINIMUM IS HIGHER THAN THAT FORGET IT.

  3. Here's what you say when someone wants $20,000 from you:

Jack, that's a fantastic idea. Let's do this. You grab your credit card, and buy $20,000 of the stuff. Let's review your results after the three months. The profit will easily cover your small interest charges on the card. Let's get started! I'm more than happy to help by driving the truck or whatever is needed. Once we've tested that it works a couple times with your credit card, I may invest too.


I have no idea "who" the scam is enacted by, it could be anyone up and down the line. Your Family Member who is suggesting the idea could well be being scammed.

1
  • Last sentence of the answer is critical - if the uncle hasn't actually gone it yet, and relations between OP and the uncle are 'good enough', it might even be worthwhile to raise the subject with him to say "hey, are you sure these results you're hoping for aren't too good to be true?" – Grade 'Eh' Bacon Feb 23 at 18:08

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.