Spotting Investment Scams and How to Protect Yourself

You should never let your guard down and hand over your money to someone without doing some proper research to see if you’re the target of an investment scam. It’s completely normal to be intrigued when someone comes to you with an opportunity that involves an incredibly high return with a minimal risk. However, just because someone knows how to grab your attention doesn’t mean that they should be trusted.

It’s completely normal to lose money in an investment. Sometimes your intuition will be wrong or you will decide with your emotions instead of doing proper research. There will be times when your analysis will be faulty or you won’t have too much luck when it comes to timing. When you make a bad investment, you will feel some regret. But if you lose money to an investment scam, then that regret will be huge.

In order to avoid becoming the target of investment scams, you will need to know how to spot them. Although you can get approached with various different types of investment scams, there will always be some signs that you’ll be able to look for. “The best thing you can do to protect yourself from investment fraud is to be aware of the common fraud tactics and to watch out for the recognized red flags of stockbroker abuse and misconduct,” advises investment lawyer David Meyer.

First of all, you should never trust people you don’t know if they approach you with an opportunity to bring you in on an inside deal. There is no reason why a complete stranger would get in contact with you and promise to make you rich. What would be in it for them?

Secondly, whenever you are offered a trading system that will make you rich, you can bet your bottom dollar that it’s a scam. Just think about it – why would someone be willing to sell this type of trading system. Finally, you should never give money to anyone promising to provide you with secrets to earning a fortune. Another thing to remember is that you should never give money to someone who guarantees a high return. Every good investor knows that nothing is guaranteed in the world of investments.

You should never make an investment just because someone told you to do it. If you think that there’s even the slightest possibility that you may be the target of an investment scam, then you should trust your instincts. Make sure to ask a lot of questions. Fraudsters will always try to avoid answering them properly, since they want people to invest right away.

Of course, simply asking more questions isn’t enough. You’ll also need to do your own independent research. However, know that you should never base your investment on company news releases and unsolicited emails. Make sure to find out everything you can about the company’s business and the services or products they provide. This will help you figure out whether it’s worth investing in the company or not. It’s also a good idea to look at their financial statements. You can do this on the SEC’s EDGAR (Electronic Data Gathering, Analysis and Retrieval) database.

You should also get to know the salesperson that presented you with this investment opportunity. Even if you know the salesperson socially, you’ll still need to learn more about their professional background. You can always check the disciplinary history of financial advisors and brokers for free by using FINRA’s and SEC’s online databases.

A common investment scam would be to get an unsolicited pitch to invest in a new tech company that has a product with a game-changing technology. Sometimes you will even see the company being praised online. However, if you can’t find any current financial information about it, then you can be sure that it’s just a scam.