When deciding how to invest your money, don't get stuck holding the fad bag.   While some people may make oodles of money while an investment fad remains in vogue, most end up losing the bulk of what they invest.

One of the earliest investments fads that you read about is the tulip fad back in Holland.  Somehow, people were convinced to pay extraordinary sums of money for a flower.

More recent fads include the Beanie Baby craze of the late 20th century during which time people paid in excess of $2,500 for a stuffed animal.  Guess what those stuffed animals are worth today.

Most investment fads don't reach the level of tulips or Beanie Babies.  Even so, by recognizing a fad as nothing more than a fraud, many average investors could have significantly cut their losses by not getting caught up in the hype.  Let's take a look at some of the signs of an investment fad:

Clue #1:  Promises of Quick and Risk-free Investment Returns:  Think back to the late 1990s and the high-flying NASDAQ when annual returns of 40% or more were the norm.

Clue #2:  It Just Doesn't Feel Right:  Beanie Babies selling for $2,500!!!

Clue #3:  It's All You Hear:  Before the Great Depression, one successful investor sold all his holdings upon hearing taxi drivers giving investment advice.  And during the dot-com boom, you couldn't go anywhere without friends and family members bragging about the quick money they made by investing in tech stocks.

Clue #4:  It's All You Read About:  How many dot-com success stories did we endure during the Internet boom?

Clue #5:  New Set of Rules Appear:  None of the "new-economy" stocks could be valued using traditional valuation techniques, so new techniques were concocted.

Clue #6:  New Crop of Talking Heads:  All of a sudden, a plethora of new experts appear touting the latest fad.

Clue #7:  Established Experts Become Contrarians:  Everyone was questioning why Warren Buffet never purchased any "new-economy" stocks, but ended up seeing the wisdom of his ways.

What should you do if you spot a fad?

Don't let greed and the lure of easy money get the best of you.  Stick to your pre-fad asset allocation model, and make sure to systematically rebalance your portfolio.  By doing so, you'll be sure to lock in some gains realized from the overpriced sectors.

And be patient.  Before long, your willpower will pay huge dividends as the fad turns out to be nothing more than a fraud.