In the ever-evolving world of finance, investment scams are becoming increasingly sophisticated.
Scammers employ a range of tactics to lure unsuspecting investors into parting with their hard-earned money.
To safeguard your financial well-being, it’s crucial to recognize the red flags of investment fraud, and take steps to protect yourself from losting money to investment scams.
Do Your Own Research
Before investing in anything, thoroughly research the investment opportunity, the company, and the people behind it.
Does the company have any regulatory licenses?
The FCA (UK), ASIC (Australia) and CySEC (Europe) all have searchable registers.
Be mindful that registration doesn’t guarantee the legitimacy of the investment, but it does offer some level of protection and accountability.
Who are the founding team members?
What is their background and track record?
Can you find their names anywhere on the internet?
Do they all have established Linkedin profiles with pictures and connections?
Check the internet for red flags.
Have there been negative news and reviews related to the company itself or any members of the company?
For broker reviews, you can refer to websites such as trustpilot.com.
You can also search for reviews from other users on forums such as Reddit.
There are also websites that report scams. For example, this website reports cryptocurrency scams.
Check their websites.
Many scam websites are simply put together without much attention.
Often there may be spelling errors, grammatical errors and other tell-tale signs that these websites are not being managed professionally.
Beware of High Returns with Low Risk
Legitimate investments typically involve some degree of risk, and returns are often proportional to that risk (higher returns usually come with higher risk).
Be wary of get-rick-quick investment opportunities that guarantee extraordinary returns, especially if they claim these can be achieved quickly and consistently and with no risk.
Remember, if it sounds too good to be true, it probably is.
There are schemes out there that promise you consistent monthly returns of 10% or more. That translates to an annual return of at least 120%.
Investments typically fluctuate over time due to market conditions.
If an investment consistently delivers high returns regardless of market conditions, this could be a sign of fraud.
Sometimes there may be a good bull market year whereby stock-picking and/or market-timing plays allow you to reap an annual rate of return exceeding 100%.
But if a scheme promises that they can deliver such high returns repeatedly and consistently, this is implying that they can deliver superb returns without any risk.
If that is the actual case, then these kind of schemes would beat all experienced fund managers out there, even those with decades of experience working in Wall Street.
So why do everyone else in the world not invest in this scheme if it is so easy for us to get rich easily?
Because it is a Ponzi scheme to fool those who just dream of making quick money or those who don’t mind being part of a scam operation that exists to lure more people into the game.
Steady returns are being reported to lure in more investors, but these returns are usually fabricated.
They may just be fake figures being shown on a platform or website.
Or it may be that they allow you to cash out your returns at first, but with the hopes that you will deposit even more money in (after the first successful withdrawal you may feel encouraged to invest more), and that is when they will actually trap you.
Ask Questions to Understand More
Don’t be afraid to ask questions about the investment opportunity to understand what you are investing in.
Legitimate investment opportunities should have nothing to hide and should be able to provide clear answers to your questions.
There should be detailed information about how they work, including risks, returns, and the people behind them.
Scammers often tout complex and obscure investment strategies that are difficult to understand. They may also claim that their methods are proprietary or confidential, discouraging you from seeking a second opinion.
If you find it difficult to get straightforward answers to your questions or the information provided is vague or overly complex, this is a major warning sign. Scammers often rely on jargon and technical terms to confuse potential victims and avoid scrutiny.
When I hear of schemes that sound overly complicated or too good to be true, I will probe further to find out more details.
Among the most important question for me to ask is who are the founding members behind the team, with a demand to see their profiles, before even understanding how the scheme is being structured.
In one of my experiences, I encountered a promoter of a scheme called TFX who got really angry (and suddenly turned from being very friendly to someone who might be an enemy), and said angrily that I am not supposed to care about who runs the scheme as that is not important, and that I would be a failure in life for questioning them and for being afraid to invest in their scheme.
The strong emotional response surprised me, as I did not expect someone to get so emotionally charged to the point of insulting me, when all I did was ask a legit and simple question that should have a straightforward answer.
This immediately raised a red flag to me.
As such, you should list down a set of questions that you need to find out to ensure that an investment is legitimate, and get clarifications to those questions.
Legitimate investments should be understandable and transparent. If you don’t fully understand how an investment works, it’s best to steer clear.
Avoid High Pressure Sales Tactics
Be wary of anyone who tries to pressure you into making a quick decision or tells you that you’ll miss out if you don’t invest right away.
Scammers often use high-pressure tactics to create a sense of urgency, pushing you to invest quickly without giving you time to thoroughly research the opportunity.
They might say the offer is only available for a limited time or that you must act now to take advantage of special terms.
Genuine investment opportunities will not demand immediate decisions and will allow you time to perform due diligence.
Often, scammers may also brainwash you and make you think you are stupid for giving up a good deal.
I have been insulted that I will be a failure in life for not investing in TFX scheme.
So what?
Don’t be scared of losing out.
Don’t rush into something before spending time on doing your due diligence on any opportunity.
There are many proper and legitimate investments out there where you can earn a good and safe return.
Take your time to carefully consider any investment opportunity before committing any money.
Diversify Your Investments
Sometimes, a fake investment scheme may be designed in such a way that will fool even professional investors.
An example is the Bernie Madoff Ponzi scheme.
Bernie Madoff managed to deceive thousands of investors out of approximately $65 billion over several decades.
The scheme’s success can be attributed to a combination of factors, including Madoff’s credibility as a well-respected financier, his ability to create a sense of legitimacy through vague and secretive investment strategies, and his use of a classic Ponzi scheme structure.
Madoff presented himself as a seasoned and successful financier, having started his own market maker firm in 1960 and helping launch the Nasdaq stock market.
He was also an active member of the financial industry, sitting on the board of the National Association of Securities Dealers and advising the Securities and Exchange Commission (SEC) on trading securities.
This background and reputation made it easy for investors to believe that Madoff knew exactly what he was doing.
He promised consistent returns, often stating that his fund earned a steady 1% per month and could not lose much money due to protective stock market put options.
Madoff’s scheme was a classic Ponzi scheme, where he used money from new investors to pay off the promised returns to older investors. This created the illusion of a profitable and legitimate investment strategy, as investors saw their initial investments grow over time.
To keep investors from cashing out, Madoff encouraged them to stay in the fund, promising even higher returns if they did so.
The scheme eventually collapsed in December 2008 when too many investors requested their returns, and Madoff was unable to meet the demands. He had only $200 million to $300 million left to pay out, compared to the $7 billion requested by his clients.
This example shows that even if a legitimate finance professional is managing a fund, it doesn’t mean that the fund is legitimate and fool-proof.
So how can we still protect our funds when investing in financial markets?
The key is to diversify your investments and not put all your eggs in one basket.
In order to limit your risks, you should diversify your investments across different asset classes and funds in order to minimize the impact of any potential investment losses (applicable no matter if you fall for scams or not).
Remember not to put all your life savings into just one single type of asset or investment.
Stay Informed & Seek Professional Advice
Join investment groups and communities, and read the daily news to stay up-to-date on the latest investment scams and techniques used by fraudsters to deceive investors.
By staying informed, you can better protect yourself from falling victim to investment schemes.
If you have doubts, you should also consider seeking advice from a qualified financial advisor before making any investment decisions.
A financial advisor can help you evaluate your investment options and make informed decisions based on your individual financial goals and risk tolerance.
They would also be able to analyze whether an investment scheme is legitimate or not.
Conclusion
Investment scams can be devastating, but by being aware of the warning signs, you can protect yourself and your finances.
Always approach investment opportunities with caution, do your due diligence, and don’t hesitate to seek professional advice. By staying informed and vigilant, you can safeguard your financial future and avoid falling victim to investment fraud.
If you have any questions about investing in stocks, FOREX or cryptocurrencies, we are more than happy to help you out.
If not, continue to learn investing by reading the other articles in our blog!
– Useful Links –
✅ Sign up to TheFinancialFuse newsletter for Market News, Finance Insights & Investment Analysis:
Join TheFinancialFuse newsletter community
✅ Retire Early with My Rich Future’s Financial Budgeting Toolkit
Your Retirement Planning, Budgeting & Portfolio Management Toolkit
✅ Become a Professional Investor – Stock Investment Mastery Course:
Learn to Invest like a Professional Analyst | Fundamental Analysis, Charting Analysis & Portfolio Strategies
✅ How to Get Rich with Megatrends ebook (list of 30+ stocks):
Build a Winning Investment Portfolio with Trending Stocks of the Decade
✅ Open a Brokerage Account – Invest in Global Stocks, ETFs, Unit Trusts & more:
Open your FSMOne USD Savings & Investment Account
✅ Become a Crypto Investor & Trader – Cryptocurrency Mastery Course:
Learn to Make Money with Crypto | Blockchain Analysis, Charting Analysis & Portfolio Strategies
✅ Master Trading with The Trader’s Guide Ebook
Learn to be a Better Trader with Price Action Strategies
✅ Discover the Best Stock Ideas from Professional Analysts (20% off annual membership!):
Join Seeking Alpha premium investing club
