How to Avoid Investment Scams

We all want to make more money.

And, for many, the dream is to make money quickly and with a minimal amount of work.  This is why investing is such a popular method of making money.

If you take a measured approach, you should be able to regularly invest in carefully chosen stocks, index funds or some other boring investment, and, over time, amass a reasonable amount of wealth as you receive returns on your investment.

Many people, though, don’t want to take the measured approach.

There are stories of people making money fast by choosing the right investment, at the right time.

How many of us regular folks harbor the dream of, perhaps, taking $10,000 in capital and turning it quickly and painlessly into ten times that amount?

The unfortunate truth is that investments that promise such riches, fast and easy, are usually scams.

Does that Investment Send Up Red Flags?

Before you embark on an investment journey, you need to see if it raises red flags.

For the most part, a straightforward investment that you find via a legitimate online broker, or as part of your company’s retirement plan, probably isn’t a scam (although it may not be the best investment for you).

Here are some red flags that indicate that you could soon be the victim of a scam:

Promises of high gains with low risks

This is one of the biggest red flags in the world of investment scams.

Anyone who tells you that you can see huge gains, especially in a short amount of time, without being exposed to risk, is probably a huckster.

Watch out for the words, “sure thing.”  There is no sure thing when it comes to an investment.  Even the most boring index funds — even U.S. Treasuries — have an element of risk.

Someone who shows a history of no losses, or almost no losses, is probably making up information, or using shady accounting practices.  Remember Bernie Madoff?

You are getting access to “inside” information

If you are told that the information you receive is “special” or “inside,” it could be a sign that you are dealing with a scammer.

Also, be wary of those who keep telling you that you are “elite” or “exclusive.”  The point is to make you feel special.

The truth, though, is that most of the legitimate investment opportunities are accessible, in some way, to almost anyone.  Watch out, too, for those who say that you have passed a special “screening” process to be approved.  That’s one more trick to make you think that you are dealing with something legitimate.

You have to make a decision quickly

Anytime you are pressured heavily to make a decision quickly, especially within the next 24 to 72 hours, you are staring at a red flag.

The truth is that you will still be able to invest in legitimate ETF, bond or REIT next week.  And if you can’t buy that foreclosure this month, there will be other attractive properties, not being hawked by someone shady, available next month.

If someone is putting undue pressure on you to decide right now and get together a large amount of capital within a couple of days, you might want to reconsider.

You have to be on the alert for investment scams.

Instead of expecting that you can make a great deal of money by following someone else’s “hot tip,” it pays more in the long run to formulate your own, more stolid, investment plan.