Now Is The Time To Be On Guard For Investing Scams

by Hank

With the huge world of opportunities of new and exciting financial products and the markets’ comeback, there are a lot of investment scams that you have to watch out for. With investments booming, many people and organizations are starting to peddle scams as a way to get returns instead of honest hard work. There are many easy ways to avoid being a victim of scams, but the most important key is to avoid shortcuts. There is no free lunch even in investing. If it sounds too good to be true, then it probably is.

Here are some things that we need to remember…

Avoid Shortcuts. If you make it a rule when choosing between investments not to take shortcuts that claim to double your money in a small amount time without any risks, then you will have saved yourself from most of the scams out there. This one small act of self defense will save and protect you more than any other. Even smart, rich people have shown themselves to be no match for the elusive quick buck thanks to Bernie Madoff, but we all have to be on guard.

No Return Without Risk. If an opportunity presents itself that promises guaranteed high returns with virtually no risk, then you are looking at the primary recipe of a scam. The only investments giving a sure return in today’s uncertain age are government treasuries and they do not return much more than inflation, a few percentage points a year. Investing is built around the universal assumption that the higher the risk, the higher is the possible return. If either side is missing from that equation, then either you do not have complete information about the investment or the opportunity is fake to begin with. The larger the return always implies a greater risk of losing your money. You cannot have one without the other.

Know Your Investment Manager. Knowing the person or organization that is representing you with investment opportunities is very important. There is no substitute for their squeaky clean credibility. You should assess the claims that they make on past returns. If these are incredibly promising over a long time horizon, then that is not usually a good sign.  

Know The Investment. If the investment or opportunity is something that you have never heard of or are unfamiliar with, the likelihood that you should be comfortable investing in that is low. Like stocks, you should know the company inside and out. You should understand how they make their money. The same can be said for your investments. You should know who you are dealing with. You should understand how that company is compensated for their time and advice to its customers.

Who Knows? Sentiment on Wall Street has usually been that the right time to pull out of any investment is when you hear people on the street talking about its attractiveness. If news of how great an opportunity, such as buying real estate in a certain area, a certain emerging market, a certain currency, or a particular low-valued stock is all around you, then either it is a scam or an opportunity you will enter into too late.

Now that the financial markets are rebounding, more and more scam artists will be coming out of the woodwork. Investors, new and experienced alike, will need to be on their guard to protect themselves for the scams of fast money with little to no risk of capital. The same tried and true truths still remain. There are no free lunches in investing. There are risks to every opportunity to earn a higher interest rate above a Treasury Bill, and anyone who tells you different is a scammer.

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