Watch Out for Investment Fraud and Scams
An unfortunate circumstance of modern life is that there is no shortage of unscrupulous individuals who would like to separate us from our money. The internet is often used to facilitate these rip-offs yet many traditional scams can be perpetrated without an electronic medium. Most of them simply take advantage of our foibles and flaws as human beings. The July 2019 edition of the American Association of Individual Investors Journal pointed out some “red flags” that may signal potential problems with a financial product or security.
They are:
- Investments with high guaranteed returns with little or no risk—there are no “free lunches”—high potential investment returns usually come with elevated risks.
- Once-in-a-lifetime deals—scammers use this pitch to pressure you into a quick decision.
- “Everyone is buying”—Just because others may have purchased a product doesn’t automatically make it right for you.
- Pressure to buy quickly—similar to item #2, perpetrators want to cause you to decide quickly, leaving you less time to analyze and determine whether the purchase is suitable for you.
- Overly consistent returns—market volatility causes all but the lowest risk/lowest return investments to vary over time. Bernie Madoff successfully used this pitch in the largest financial fraud in U.S. history.
- Unregistered products and sales people—financial services are highly regulated and sales personnel must be qualified and licensed to protect the investing public.
- Avoiding questions—investors should be skeptical if the salesperson is trying to keep you from seeing the truth.
- Overly complex investments and strategies—If the salesperson can’t explain and ensure that you understand the investment and its fees, it probably isn’t right for you.
