Over the last market meltdown many investment scams have come to light. Many of the victims were not novice investors, but rather smart and well-educated investors. So why did they fall for these scams? There could be many reasons such as trust, greed and peer pressure, but one thing they all have in common is ignoring warning signs. Often investors are so persuaded by the sales pitch that they overlook or ignore obvious warning signs. Here are some of these warning signs?

 

1. Amazing Returns in a Short Period with Minimum Risk
If the sales pitch is that you will make astonishing returns in a very short period and there is no or minimal risk of a loss…then watch out! Always remember risk and return are related, if you want a high return you’ll have to take on higher risk. There is no such thing as a “risk free” investment (even government bonds and treasury notes carry inflation risk).

2. Stranger Advices You
Not sure why anyone would ever want to take investment advice from a stranger; they don’t know anything about you, how can they possibly provide you with good investment advice. Would you take career or medical advice from a stranger?

3. Pressured into Buying
If you don’t get into it now, it’ll be too late. If you are not given a few days to think about it something most be wrong! Nobody should make a major financial decision without proper due diligence. Using pressure is a very common and strong indicator of an investment scam, con artists are well aware that if they give you time to research chances are you will not fall for the scam. Never make an investment decision due to pressure and without any thoughts.

4. A “hot insider tip”
First of all it is illegal to share or act on any insider information. This could not only cost you money but also potentially put you in jail. If you receive a “hot insider tip” chances are that it is a scam, even if it is true you will be committing a crime by acting on it. Best remedy in this case would be to just ignore the “hot tip” and not to pass the information to anyone else.

5. No Prospectus or Financial Documents Available
If it is a legitimate investment opportunity then there will be a Prospectus as well as financial statements available for investors to review, if these documents are not available you may be talking to a scam artist.

The most prominent reason for investors becoming victims to scams is because they ignore common signs of investment scams. A golden rule every investor should keep in mind is if it sounds to good to be true, it probably is.

Related Topics:
Successful Investing: 10 Tips for Successful Investing
Investing and Money Rules of Thumb

This is an updated version of an earlier article we had published a few months ago, as I feel this is an important subject I wanted to address is one more time.