5 Ways People Can Protect Themselves from Investment Scams

How to Protect Against Investment Scams

• Ask as Many Questions as Possible

• Do Plenty of Research

• Use the Internet Wisely

• Know the Representative

• Recognize Red Flags

Investment scams are everywhere today, and it’s important that people know how they can protect themselves from investment scams. Ever since the huge and widely publicized Bernie Madoff investment scam, potential investors are nervous about investing their money. While not every investment opportunity may be a Ponzi scheme, there are many other ways people can be ripped off without being aware of what’s happening. Few things are as frightening as the idea of a person losing money it may have taken years to save. Here are 5 ways people can protect themselves from investment scams.

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Ask as Many Questions as Possible

Fraudsters and con artists are relying on the fact that the people they scam are naïve and will take everything they say at face value. It’s important that potential investors prove them wrong by asking as many questions as possible and doing as much research as possible. If the con has to spend too much time answering questions he or she doesn’t want to answer, the con may give up and move onto the next victim. Here are some good questions to ask.

• How will their investments make money?

• What fees do they charge?

• Is the product they offer registered with the SEC or another state security agency?

• Does their product meet the client’s financial goals?

• How long has the company been in business?

Do Plenty of Research

When it comes to a person investing their life savings, or even their weekly savings, there is no such thing as too much research. The individual should find out as much as possible about the company before even considering to invest. They’ll find plenty of positive information on the company’s message board their company newsletters through unsolicited emails, but that doesn’t make it true. The SEC offers valuable information through its Electronic Data Gathering, Analysis and Retrieval (EDGAR) database, including the company’s periodic reports, registration statements, financial statements, activities, and prospectuses. Investors are advised to take advantage of this valuable tool.

Use the Internet Wisely

Investor.gov states that online and social marketing sites are a great source for fraudulent activities, and it’s extremely important that people protect their social media sites. One of the best ways a person can protect their sites is by adjusting their privacy settings so others cannot view their information. They should keep private information to a minimum, including not providing strangers with personal information and geographical location. If this site is for professional reasons rather than personal, the number of accepted friend invites should be limited to only those the individual knows well.

Know the Representative

If the representative or salesperson is someone the individual knows personally, they’re off to the right start. However, they should still learn all they can about how successful the salesperson is in the business. If the salesperson is a stranger, it’s even more important for the client to learn all they can about the salesperson. They should find out if the individual is licensed to sell securities in that particular state and if their firm has a disciplinary history. The SEC has an online database where potential investors can get free information on investment representatives.

Recognize Red Flags

Often people that have been ripped off realize after the fact that there were red flags that should have been acknowledged prior to giving away their money. Knowing the red flags and what red flags to look for can make a big difference. If it seems too good to be true, it probably is. No investment can be guaranteed to be a winner. If the client is told otherwise, it’s not true. If the salesperson says it’s a limited time offer or something that “everyone” is buying, it’s probably a scam.

Investing money with the purpose of making more money can be exhilarating, exciting and yet very stressful. With the right amount of research and due diligence, potential investors can protect themselves from being victims of investment scams while they sit back and watch their money grow.