Investment scammers victimize thousands of people every year to the tune of hundreds of millions of dollars. Over the years they have honed their approaches and techniques and are difficult to detect. When it comes to your money, the safest course is to maintain a healthy dose of skepticism while educating yourself on how to spot an investment scam.
Investment scam lures
If someone tries to sell you on any of these features, you are likely dealing with a scammer:
- High guaranteed returns
- Low or zero risks
- Getting in on the ground floor
- Investing in breakthrough technologies
- Free dinner seminar
- Stocks selling for less than five dollars
When approached by someone offering an investment opportunity, beware of these red flags:
- Unsolicited phone calls, texts, or email
- Hard selling
- Lofty promises
- Seller has no return phone number or physical address
- Pressure to make a quick decision
- Complicated explanations or sketchy details
How to avoid becoming a victim
Fortunately, it’s easy to sidestep investment scams using some available tools and common sense. Here are some ways to protect yourself if you suspect you’ve been approached by an investment scammer.
Check their background. Legitimate investment professionals must register with the Financial Industry Regulatory Authority (FINRA), The Securities and Exchange Commission (SEC), or your state’s securities or insurance regulator. FINRA offers BrokerCheck, a free online database of brokers’ backgrounds, experience, employment history and any complaints or disciplinary actions.
Do your homework. You should never invest in a product you don’t understand. If you find yourself considering an investment, study up on it to fully understand the risks and how it works. You can use the EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) database on the SEC.gov site to research investments.
Never act on an unsolicited offer to buy an investment. Quite simply, why would you ever consider an offer to invest in something you know little about, from someone who knows nothing about you?
Finally, develop the mindset that, if it sounds too good to be true, it probably is.