Signs of an Investment Scam (Part 1)

Signs of an Investment Scam (Part 1)

Every investor is hoping to find that perfect investment at some point — the one that will produce massive returns and make you rich beyond your wildest dreams. Unfortunately, there are less-than-scrupulous people out there who will play into those fantasies by pitching you scams.

There is a big difference between making a bad investment, which happens to nearly all investors and investing in a fraudulent deal, which shouldn’t happen to any investor. Just as you should learn to recognize a sound investment, you should become familiar with suspicious deals guaranteed to take your money but give disappointment in return. Here are the signs you should look out to know if the investment is a total scam.

  • It’s “risk-free” or “guaranteed”

There is no such thing as a 100% risk-free investment. Even an investment as secure as, say, a bank savings account or a government bond could hypothetically fail and legitimate investment advisors will always fill you in on any potential risks. So if someone comes to you with a “risk-free” investment, it’s time to start scanning the fine print.

  • It’s supposedly low-risk and high-return

It’s an investing cliché that the higher an investment’s risk is, the higher its potential return. Consider bonds: U.S. government bonds offer relatively low returns because they are also extremely low-risk. Blue-chip corporate bonds are somewhat riskier than government bonds, so they offer a somewhat higher return. And so it continues all the way to junk bonds, which offer fairly high returns to compensate for their high risk. An investment that is purportedly both low-risk and high-return falls into the category of “too good to be true.”

  • It’s available for a limited time only

Few, if any, legitimate investments are time-sensitive, but scammers love to make this claim. It makes the investment seem more desirable, and it doesn’t allow you enough time to research the investment and confirm its legitimacy. The more immediately an investment advisor tries to get you to commit, the more important it is to do your homework — both on the investment advisor and on the investment itself.

  • It’s been purchased by a celebrity

Many ordinary people try to follow in the footsteps of successful investors and wealthy celebrities. Warren Buffett is famous for his brilliant investment choices, so if someone offers to sell you shares of a stock that Warren Buffett has purchased, you may naturally be interested.

This article will be continued in Part 2. Stay tuned!

See Also: Warning Signs of a Risky Investment

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