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How to protect yourself from investment fraud

by | Aug 20, 2019 | Firm News |

If there is one universal agreement, it may be that your money should stay as your money. The problem is, there are always fraudulent investment advisors and scammers trying to come between you and your money.

There are some key steps you can take to protect yourself from investment fraud. Also, understanding red flags and common persuasion tactics used by these scammers will help keep your money where it belongs. You can find those answers below.

Tips to protect yourself from investment fraud

  1. Research and ask questions: These know-it-alls are preying on your desire to cash-in and counting on you to not do your research before you invest. Ask numerous, detailed questions about the investments. If you are a newcomer to investing, it would be best to either refer to a confidant who does know the industry or ignore the situation completely before you get roped in. Before you ask, do your research by researching the company, its product and its financial statements. The Securities and Exchange Commission has a filing system you can search called EDGAR. They also have documents you can peruse to find the right questions to ask this “advisor.”
  2. Trust the salesperson and be suspicious of unsolicited offers: If you’re unfamiliar with the advisor, it would be wise to follow the steps above or rid yourself of the relationship. Often, these are unsolicited high return and low risk, or off-shore offers that are too good to be true. Most offers like this will yield you the exact opposite, high risk and low or no return. If it’s a “pump and dump scheme,” the scammer will gladly invest your and others’ money into the non-existent but pretty investment, pump it up so it looks like it’s going strong and then dump in investment and split with the cash. Make sure you are fully trustworthy of the salesperson or advisor before investing.
  3. Protect your online profile: Social media sites are a fraudsters haven. These sites are incredible social marketing tools and with the ability to create account after account, they are the perfect medium to continuously attempt to bait people without them becoming keen to who they are.

What red flags should you be aware of?

Some of these we covered above, such as, if it sounds too good to be true, it often is. Also, be aware of the following.

  • Terms or phrases like “incredible gains,” “breakout stock pick,” “phantom riches,” “guaranteed returns,” “huge upside and little to no risk,” or “everyone is buying it.”
  • Be aware of manipulation because credibility can also be fraudulent. Some people are good at selling themselves. Check their actual qualifications with the resources above before throwing down your hard-earned money.
  • Pressure to send your money right away: Many scammers will use the phrase “once in a lifetime opportunity” to entice you to send them your money as soon as possible so you don’t miss out on an amazing investment. Believe this, you aren’t missing out. The only thing you would be missing once sending your money, is the money you just lost.
  • Reciprocity or the “if you scratch my back I’ll scratch yours” technique is often attempted through free investment seminars. Investments should never be a quick decision and should always be thoroughly researched before investing.

Though these tips are wise to follow, do understand that there are some very wise advisors out there who really do want to help you increase your wealth and build a safe and reliable portfolio. Building the relationship with your advisor and understanding the ins and outs of the investment are some of the most important steps you can take to ensure you are investing is something that will benefit your future.


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