Mon 5 Jan 2009
The 10 Tell-All Questions About Investing Scams
Posted by Robin Bal under Personal FinanceAdd Comment
With Bernie Madoff’s Ponzi scheme foremost in many investors’ minds, how can you tell whether an investment pitch is a scam? Keeping Bernie Madoff’s Ponzi scheme in your mind minds. “It pays to remember that if an investment opportunity sounds too good to be true, it usually is.” Here are 10 tell-all questions to consider:
1. Does it promise “low risk and high gain?”
“There is no such thing as a free lunch.” It’s a fundamental fact or basic of investing that the higher the potential return, the greater the risk and that you may never see that return. Do not fall for investments that promise spectacular profits or “guaranteed” returns.
2. If you don’t act now will it be too late?
Why will it be too late? Any legitimate investment will be there tomorrow, and next week, and next year. Never be pressured into investing in something because tomorrow might be too late. Even if it turns out that the stock doubles tomorrow, you should feel better knowing that you were cautious and responsible with your money.
3. Does the investment tip claim to predict the future?
“It will double in three months.” Oh, yeah? And where did your broker buy his or her crystal ball? Not only is this a ridiculous promise for a broker to make, it’s illegal. Go aheaed and report this infraction to his or her sales manager. And if the matter doesn’t get satisfactory attention from a supervisor, contact the Financial Industry Regulatory Agency (FINRA).
4. Do you know the background of the salesperson and his/her employer?
Any individual selling securities to the public must pass a background check, a series of examinations, and be registered with FINRA. Likewise, their employers must also be known to FINRA and the SEC. If you would like to check up on the background of your broker or brokerage firm, use FINRA’s BrokerCheck page. But remember, even if they don’t have any complaints against them, it doesn’t necessarily mean they can be trusted. You could be “Scamee No. 1.”
5. Does it “guarantee” anything?
It is impossible to guarantee the performance of any investment, but if your broker is doing so he could get tossed out of the industry.
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