Tips for Investors: Protect Yourself against Possible Fraud Schemes

6 Helpful Tips for You To Know before You Invest

Tips for Investors: Protect Yourself against Possible Fraud Schemes

One thing that dreads most investors is fraud. The thought of losing all that one has worked for to cons and frauds literally sends shivers down the spines of investors. This is why many of them spend lots of time watching their own backs. A lot of time that could have put to productive use is spent on studying and trying to avoid fraudsters. But the reality is that fraudsters are getting smarter and sleeker than before. So is this a sentence to despair? Not at all.

This article will highlight vital tips that investors can use to protect themselves against possible fraud schemes.

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Always do Prior Research

Before you commit to any deal, purchase or proposition, always do a thorough research. Dig out for information from reliable sources about a company and its products. Have a look at the company’s financial statements and business prospects especially if you would want to buy its stocks. The Securities and Exchange Commission (SEC) can be a great reference point when seeking valid reports of companies in the stock exchange.

There are some companies though that do not file reports with the SEC, thus, obtaining credible and valid reports about them may be cumbersome. Be extra cautious before deciding to invest in them.

Do not solely rely on information that is present on a company’s website, online blogs, and social networking sites. Such information may be inaccurate and misleading.

 

Get to Know the Sales Personnel

At times, a sales person may approach you and persistently try to tout an investment to you. If the individual is good at being a sales person, then you might be inclined to put your money in. However, it is always recommended to do a background check on such sales people to ascertain their credibility. Find out whether the securities broker or sales person is actually licensed to sell securities. It is also possible to check on the history of such sales personnel through the database of SEC and constituent brokerage companies. Get to know their disciplinary history so that you know the character of who you are dealing with.

 

Avoid Unsolicited Offers

These are mostly present in the online space. You may receive unsolicited offers and pitches to invest in a particular company that seems to be massively praised online. However, when you try to search for the financial information of the companies from credible sources, they are amiss. Also, there are a type of scams, for example, pump and dump scams that are used to fleece investors. A scammer may come up with a list of potential investors that may be interested in a fantastic deal on a low-priced stock. These scammers go ahead and pitch the stock to these investors, and since the deal is actually impressive, many investors buy shares. What these investors do not know about the scammers is that they own a large amount of this stock. Also, the stock may not necessarily be representative of a legitimate business. As more investors buy the shares, its demand rises and hence the price rises sharply. At the peak price, the scammers hit and sell all their shares. As a result, the value of the stock decreases leaving the gullible investors with worthless stocks.

 

Run Away If You Are Promised Quick and Guaranteed Returns in the Shortest Time

This is normally the preferred tagline of most fraudsters. They exploit the greedy and lazy nature of some individuals. The most notable scam that promises quick returns in the shortest time with minimal effort is a Ponzi/Pyramid Scheme. To illustrate: A fraudster may promise you by only investing $20, you can make $20,000 in just 8 weeks while working at home. The people that invite you to such schemes are people you know. The surprising thing is that once you join the scheme early, you may start earning some good money. One may also be motivated to invest more and also recruit friends and family to join. This is where the catch is. The investment is actually non-existent, and the earnings that members get are paid from all the investors’ money. When there are no more new members joining, and people start quitting the investment, a cash crunch looms. This is a sign to the scammers that it is time to vanish! And they take all the money with them.

 

Don’t Fall For “Everyone is Buying It”

When an investment or sales pitch sounds anything like this, you should watch out. This is a red flag that should make you evaluate if you really need to invest or purchase the product.

 

Pressure to Buy now or Miss Out – Resist the Urge!

This is another favorite tagline of fraudsters. They normally pressure investors to send money “Right Now” since the offer will not be available the next minute/day/week. Always resist the urge to send money before you have ascertained the credibility of an investment or product.

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In conclusion, the above tips are sure to protect you from a wide range of fraudulent schemes and scams. Be vigilant and always do due diligence as a measure to protect yourself from fraudsters.