The only way to grow your money is through investment. Leaving your money in a regular savings account is never enough because of the low interest rate. More often, inflation will take the value of your hard earned savings. But where do you invest your money? There are many types of investments available out there depending on your age, goal, time horizon and risk appetite. While there are legitimate ones, there are also some which are fraudulent in nature. As an investor, it is important that you know how to spot investment scams.
1. Low or No Risk, High Return
If someone offers you an investment that is low risk yet offers high returns, you are most probably getting scammed. Investing is all about risk. Whether you are buying bonds, funds, stocks, stock option, real estate, antique or any other kind of investment; there is always risk involved. The same is true when you are opening a business.
The general rule of investment is that the higher the risk, the higher the potential return. If the investment being offered to you defies this rule, then it is a scam. These kinds of investments are what you call phantom riches. It simply means that they are dangling the prospect of wealth, knowing full wealth that it is something that you want but can’t have.
Always remember, “If it is too good to be true, it is too good to be true.”
2. High Pressure Sales Tactics
Avoid being rushed. Example high pressure sales tactics include:
- Limited Time Offers
- Available Only to First Few investors
- Invest Today and Get Credits
Although high pressure sales tactics are considered legitimate marketing strategies, scammers used this primarily as their persuasion technique. Their goal is to have you commit to the investment right away so that you will have no time to do your research or change your mind. Never entertain those that give you pressures or force you to make a quick decision.
If you are going to invest your hard earned money, you need to have ample time to think about it and do your research. It is one of the investing rules from The Richest Man in Babylon. Know what you are getting yourself into. Yes, do your research even if the one offering you is a close friend or family.
3. Unsolicited Approaches
If they just contacted you out of the blue; chances are it is a scam. How did you learn about the investment? If you learned about it through a phone call, email or text message from someone you don’t know; Some of them will even ring your doorbell. This is what you call cold calling. Their intention is to sell something or make you invest in something. Although it is not illegal, it is best to be wary of them.
If ever you receive an offer, get the following details:
- Full name of the person
- Company name and address
- Telephone number preferably landline not a cellular number
Do not deal with them if they seem hesitant to give their information. Once you get all these details, hang up. Tell them that you think about it and that you will be the one to call them back. Then do your research. Make sure that the company is duly-registered. It is best also to check if the type of investment is regulated by the government.
4. Requirement of Getting New Participants
Multilevel marketing is a sales strategy wherein distributors are encouraged to recruit new distributors. Many big companies use this as their marketing strategy. Although it is legitimate, it is also very controversial. Many people have been scammed with pyramid schemes. How to spot the legitimate ones from not? Simple, the legitimate ones focus on product sales while the scammers focus on recruitment of new members. If the earnings are dependent on how many people you can recruit, then stay away from it. It is a pyramid scam.
Do not invest in something that you are not familiar with. Do your research first. Take your time. And soon, you will find a legitimate investment vehicle that fits your financial goals.