Ways to Spot an Investment Scam

Time To Read 2 MIN READ

Everybody hopes to find a great investment, but nobody wants to be the victim of a scam. Unfortunately, the more glittery the investment offer and the greater the returns that are promised or even guaranteed, the more likely it is that the "great offer" is really a fraudulent scam. Here are a few tips for figuring out when to walk away.


If It's Pie-in-the-Sky, Say Goodbye

If an investment promises so much that it feels like a dream, it's likely to be a scam. Look twice, or even three times, if the plan promises spectacular results or guarantees double-digit returns. Every investment involves risk — legitimate sales pitches won't promise you the moon or guarantee phantom riches you will likely never see. Listen to your gut — if an offer feels to good to be true, it probably is.


Trappings Don't Signal Authenticity

Don't put a lot of weight in fancy titles and other signs of worldly success when you're evaluating someone offering you an investment opportunity. Most people trying to pass off scams look good and walk tall, banking on you falling for their act. Instead, verify the person's credentials before making a move.

All investment professionals are required to register with Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) or your state securities or insurance agency. Look them up online on  FINRA BrokerCheck. It's a free tool and a good way to obtain information about people who claim to be brokers and investment advisers.


Take Your Time to Make Up Your Mind

Keep your ear out for phrases like "limited offer" or "act now" threats. Don't be intimidated by a salesperson's now-or-never rhetoric. Any time-limited threats should be viewed as red flags, signaling a potential scam. Legitimate investments do not disappear overnight, so if that's the line, head in the other direction. Likewise, don't let someone make you feel obliged to invest because of free gifts they pass out. Gifts are gifts, and you have every right to insist on more time to consider.


Beware of Inside Information

If a salesperson claims he has special connections or inside information that is not available to others, take a step back. It is against the law to make trades based on insider information that is unavailable to the general public. Scammers sometimes lure investors by offering them exclusive membership in an investment organization or an insider circle of active investors. Your best bet for avoiding financial scams is to become educated about fraudulent tactics and carefully investigate the opportunities out there before jumping on them.