Many people picture out successful investors to be riding in sleek cars, going to fancy dinners, sail on yachts, and just have the time of their lives. What many people don’t see is the hard work and discipline that goes into investing.
But the flashy cars, upscale houses, glitz, and glamour can easily suck in an aspiring investor like you, especially when these things are hyped all over social media. When this happens, you can get blindsided, your emotions will run high, and then the next thing you know, you got roped into an investment scam. If you’re willing to go down a rabbit hole about real financial scams and experiences, this website is a great place to start with.
Like the victims of that website linked above, you may also find it difficult to spot an investment scam, especially when you’re new to investing. It’s even harder to detect if the supposed investment is being offered or introduced by someone you know or trust.
Fortunately, there are early signs that can tell you that you’re dealing with an investment scam. Below are four aspects that you must watch out for:
1.Guaranteed High Returns Within A Short Time
When you’re guaranteed high returns within a short period of time and with no risks whatsoever, then run. This is the hallmark of an investment scam. Always remember that ‘if it sounds too good to be true, then it probably is.’
No legitimate bank or investment company can promise high returns within a short time since it would be unsustainable. Sure, you can earn high returns from stock investments and trading, but all these come at a huge risk. Such risks are usually made known to you by your broker, financial advisor, or are written in a contract.
Initially, investors of a financial scam get their returns as promised but since it’s impossible to maintain, the whole scheme eventually collapses. So, over time, investors will lose their money, except those who were able to withdraw their investments before the scheme went bust.
2.Recruiting Is Highly Encouraged
Let’s say your friend, who earned huge returns from a supposed investment company, has also urged you to invest. They tell you that you can enjoy high returns, too! Then, when you browsed through your Facebook feed, you saw that same friend sharing about their newfound wealth and is urging others to invest in the same company as well. It’s time to take a step back and take that as a red flag.
Investment scams can confidently guarantee high returns at the start because their source of income is through new recruits who pour more money into them. Again, this isn’t sustainable. Once the recruits dry up, the money dries up as well. This system is also known as a Ponzi scheme.
3.Appeal To Emotions
This is a tactic used by ‘investors’ who are pressured to recruit or by the head of investment scams themselves. Scammers are pretty good at this, and they can use your desires and weaknesses to their utmost advantage.
For example, if you have children, they’ll be saying that the returns will be enough to put your kids through college. They may also tell you that you can pay off your debts or mortgage once you trust the system and invest.
There are many ways for investment scammers to appeal and manipulate you through emotions. Sometimes, it comes in the form of social media posts, webinars, or online meetings. It’s easy to hype up a high lifestyle on Instagram, for example. You may also have entered a webinar where young people talk and flaunt how they went from zero to millions, then show off their mansions, fast cars, private jets, or yachts.
All of these are simply appealing to your inner desires and emotions. Legitimate investment companies will show you figures, facts, and numbers instead. In other words, dealing with real investments is boring and it’s not hyped and flashy like what social media will make you believe it would be.
4.Details Are Vague
As an investor, it’s normal to ask questions. You’ll be putting your hard-earned money into this company, so it’s expected to have hesitations, clarifications, and questions. Real investment companies and potential investing partners will understand this. Again, they can show you hard facts, statistics, numbers, graphs, taxes, and market analysis to help you decide. These facts and information are also constantly updated and are distributed to investors quarterly or monthly if needed. In other words, legitimate investing companies are transparent.
But if you’re dealing with an investment scam, you’ll only be given vague details. Aside from guaranteeing high returns, nothing else will be explained to you. Other investors may even discourage you from asking hard questions. At most, they’ll just repeat their promises and even appeal to your emotions and desires again. If you prod for updates and details, the answers will be vague, and you may even be referred from one person to another without ever finding out the real deal.
A quick way to check if an investment company is legitimate or not is to go to the Securities and Exchange Board and then verify if the company is indeed licensed or registered. If it’s not listed there, then it’s a scam for sure.
However, some investment scam companies can still produce legitimate documents and proof of registration. But your due diligence shouldn’t stop there. You must still be wary and observant. Most of all, take note of the signs explained above and make sure that none of those are present.