You can never be too careful when investing. While there are many legitimate investment opportunities, there are also many investment frauds. Often, it is hard to distinguish the two. Moreover, the consequences can be critical. You can lose your life savings in a fraudulent investment scheme. Also, you could drag others with you.
Not few were the cases when people fell for scams because of recommendations. When a friend or relative praises an opportunity, it seems more reliable. However, it shouldn’t unless that person is a financial expert.
In the end, avoiding investment scams comes down to caution. First, be cautious with recommendations. Just because an offer sounds tempting, it doesn’t guarantee returns. Investments work like retail. They rely on promoters. Therefore, be careful who you trust.
Secondly, do your research. Don’t blindly hand over your money to any broker or company. Learn who you’ll be working with whether you buy stock, commodities, or cryptocurrencies.
All in all, there are many things to consider before investing. To avoid investment frauds be cautious, even skeptical. Here are a few tips to help you out.
Investment Frauds Red Flags
Most investment frauds stem from a lack of information. Investors, especially newbies, rush to stake. They invest hard-earned money hoping for high returns. Yet, this is rarely the outcome in investment scams. Contrarily, people lose money. Sometimes, irrecoverably. So, it’s first essential to understand what cunning stereotypes to avoid. Here are three examples.
All investments pose some risks. Also, no investment is a guaranteed recipe for fortune. The most common pitfall for investors is the promise of high returns. If an opportunity is promoted as a get-rich-quick scheme, avoid it.
The most successful scams are those that promise constant, high returns. These claims can’t possibly be accurate. Why? Because no one can predict economic trends. A crisis, a new law, a company shutting down. All these can make investment schemes tumble.
FOMO stands from fear of missing out. This is what makes many investors act fast. However, when it comes to money, you shouldn’t rush. Especially if you can’t afford to lose it. Fraudsters often lure people with time-limited offers.
Consequently, they gather funds fast. People act in a rush because of fear. They fear that others will take advantage of the offer. And they won’t make it in time. FOMO can have drastic consequences. So, avoid it while investing. Be rational and anticipate outcomes.
Finally, watch out for reciprocity. Just because a broker is helpful, you don’t owe them anything. Many phony investors lure people with free giveaways. For example, free webinars or courses. If you meet face to face, they might even buy you lunch. Don’t fall into this trap. You don’t have to return the favor by investing.
How to Behave
Now, you know what to avoid. So, let’s see how to proceed when investing. Here are some healthy behaviors that can keep you safe.
Don’t shy from asking questions. As many as you want to. If an investment offer is legit, there’s no point in hiding information. Therefore, feel free to dig deeper. Ask questions about potential returns. Learn where your money will go. In an offshore account, a national bank? These are reasonable questions.
Don’t blindly invest. Anyone offering investment plans holds information. They are morally and legally responsible for sharing it. As an investor, you have rights. You are entitled to know where your money’s at. Also, it would help if you learned when you could withdraw it.
On a similar note, carry out independent research. Do it even if you invest through a broker or company. This is how you make sure you partner with reliable people. Furthermore, research helps you avoid crooks.
So, where to start your research from? It depends on the nature of your investment. Will you put your money in someone else’s hands? A broker or fund manager, for example. In this case, check that person’s professional history. First, make sure they are licensed professionals. Then, find out if they had any past problems. Trials, customer complaints, regulatory issues. All these are relevant.
Do the same for companies if you buy stock. Learn more about their activity, licenses, history, etc. Also, always read reviews. There’s plenty you can learn from other investors. There are also many public directories. Use them to check licenses and company registration details.
Moreover, be wary if approached all of a sudden. Many investment scams start with unsolicited offers. Pushy salespersons are another red flag.
There are many types of financial fraud. Yet, they resemble nature. Therefore, you’re ready to avoid the next once you spot one. Most financial frauds rely on credulity. Scammers also profit from the less knowledgeable. And when it comes to finances, many of us fall into this category. So, keep in mind these tips to avoid financially wrecking investments.