Investing your money is a great way to save for retirement, college and other big ticket expenses. Unfortunately, sometimes our desire to see a great return on our money leads us to fraudulent investments. Scammers know that we all want the “too good to be true” investment to actually be true, and they work hard to convince us that it is true. Follow these tips to avoid investment scams:
1. Don’t let anyone rush you.
One of the ways scammers get their victims is by rushing them into making decisions. When someone solicits you about an investment, ask for some time (at least 24 hours) to think it over and consult your investment professional or other trusted resource. If the person soliciting you pressures you into making an immediate decision, walk away!
Keep in mind that sometimes pressure is subtle. The scammer might agree to give you some time, but follow it up with something like “However, our [fill in the blank] deal ends today.” It doesn’t sound pushy, but makes you feel like you’ll be missing out on something if you don’t sign on right away. That’s a red flag.
2. Don’t let anyone scare you.
Scare tactics are common among scammers, too. They know that money issues fill people with anxiety and they prey on that anxiety. If an investment solicitor starts painting a bleak picture for you about how bad life will be if you outlive your retirement savings or you don’t have enough money to handle an unexpected illness, again, walk away. A trustworthy investment professional won’t use scare tactics. He may talk about retirement or medical expenses, but he won’t use those things to scare you into investing.
3. Never let anyone have total control.
Some of the worst investment scam stories we’ve heard recently (think “Bernie Madoff”) involved people who let someone else have complete control of their money. Be wary of someone who says things like, “I’ll take care of everything.”
4. Don’t put all your eggs in one basket.
In other words – diversify, diversify, diversify! Going back to the Bernie Madoff example, the people who were hardest hit by his scam were the ones who invested ALL of their money with him. There’s nothing wrong with taking a little risk once in a while. In fact, there’s some risk involved in nearly every type of investment. But don’t risk it all. Put some of your money in the risky, potentially-high-yielding investment, but put some of it into safer investments, too.
5. Ask lots of questions.
A reputable investment professional will willingly talk you through anything you don’t understand. So ask as many questions as you need. If the answers are vague or the person you’re talking to dodges questions and simply repeats his sales pitch, you’re likely not dealing with a trustworthy professional. Remember: it’s your money and you have a right to understand what’s going to happen to it.
6. Don’t base your decision on appearances.
If you’re feeling uncertain about an investment, but the solicitor looks professional and trustworthy, don’t invest. At least, not right away. Scammers know that they have to look and sound the part, and they work hard to do just that. Ask lots of questions and ask for information you can take home to review.
7. Stay diligent, even after you’ve invested.
Once you’ve made an informed decision and invested your money, keep track of the investment. Ask for and review reports on a regular basis. Ask questions if there appears to be unauthorized or excessive trading. A legitimate professional will provide you with additional information and answer your questions in a timely manner. If you’re getting the run-around in response to questions or requests for information, consider pulling your money and going elsewhere.
The world of investments can be overwhelming and a little scary. But it’s also navigable. Just remember that it’s your money and you’re in charge.
For more ideas on how to improve your financial health, check out Quizzle.com, where you’ll learn how to get out of debt faster and get free home loan recommendations tailored to your unique situation. And read these other great money-saving articles:
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