Financial & Investment Scams – Keeping the Target off your Back
Below are FIVE factors worth considering prior to making investments.
WHO's THE SOURCE...?When it comes to keeping the target off your back, the first question is WHO. Who is making the investment recommendation...?
In this day and age, it may not be a person. At least not initially. Scammers use websites, emails and social media to target new investors to their schemes. The law in all (50) states require a person who is recommending or soliciting an investment be licensed, and in most cases registered.
Check sites like www.sec.gov and www.FINRA.org to see if they are licensed. Additionally, pay attention to any disclosures that they have on their license. This could be an indication of past, bad, behavior.
2. RISK, RETURN, OBJECTIVE....?When you are being targeted, there are several indications and behaviors, very, commonly used by the perpetrator.
1. REWARD- The upside potential is HUGE...! or so they say. Be, very, wary of investments where the return is promised, guaranteed, and, especially, Huge. Double digits percentage returns, are a common theme with scammers. Also, things like; "See how other investors are making 150%", "Here's a secret Warren Buffett doesn't want you to know", "Change your life, NOW". These are VERY common headlines used by scammers. We've all heard it; "If it's too good to be true......"
2. RISK - Make money with NO risk. This is never going to happen. If someone says this to you, or a loved one, RUN don't walk. This is a typical tactic that allows a scammer to prey on you. All returns are risk adjusted. In other words, the amount of risk you are willing to take is almost always conducive to the potential return. Never forget this.
3. OBJECTIVE - A properly licensed investment advisor or registered representative has a duty to ensure they consider your investment objectives and ONLY make recommendation that are SUITABLE to you as an investor. Ask yourself when someone is telling you where to put your money; "Does this person understand my financial situation...?" Someone making recommendations to you who hasn't asked you about your financial goals = BIG RED FLAG.
3. EXIT STRATEGY....?One of the primary, and most forgotten tenets of investing is; Exit Strategy.
Before making any investment understand what your exit strategy is. More importantly, what options are available to you. In other words, is there a marketplace for this investment...?
Does it trade on an exchange...? If so, is there volume...?
Many investments may trade on the Over-the-counter (OTC) markets but there is no liquidity. (Liquidity is, readily, availability of buyers and sellers of an investment) Please remember if there is no market for the investment you are making, it may be illiquid. In other words, if you put your money in an illiquid investment you may never find a buyer/seller. If there are promises of a future exchange listing, ask for evidence of filings. If a person making a solicitation to you offers to buy the investment back, in the future, BEWARE. This never happens.
Additionally, investments requiring longer hold times (3-5 years) or no public information should be examined, very, carefully.
4. DO YOU UNDERSTAND....?All legitimate investments are required to have information regarding them produced, prior to sale. Stocks and Bonds, of publicly traded, companies are required to publish information quarterly. Purchases of alternative investments such as: Real Estate Trusts (REITs), Oil and Gas Partnerships, Hedge Funds, and certain mutual / fixed income funds are sold via a prospectus.
If someone is recommending that you make an investment and they don't provide the requisite documents or if they are constantly pushing the URGENCY of your investment...RUN. Never invest because; "Time is running out" or "Hurry up before everyone else gets in".
The MOST important thing is that you understand where your money is going and HOW a return can be achieved. At the end of the day, you are responsible for making diligent decisions regarding your money.
No investment is worth rushing into or sacrificing your understanding of what you are doing. Someone who is rushing you or not giving you all the information probably has ulterior motives or is counting on your ignorance. Be your best advocate.
5. ASK FOR HELP...!When it comes to a new investment opportunity do this one thing: "Try to find a reason NOT to invest." Be skeptical, be objective, be wary ,and most importantly don't be afraid to ask for help. Many times investors who've been scorned and scammed say that they didn't want to "bother their family or friends" or that they "didn't know who to ask". You have many resources available to you these days. The internet, your bank, reputable investment firms, and investment lawyers. Also, you can always reach out to the regulators and review the information on their sites regarding common investments, advisors, and warnings. Www.FINRA.org, www.SEC.gov, and your State Financial Regulators.