You might be one of those millions of Americans who’s always on the lookout to earn a little extra income or find a lucrative stay-at-home job. If that’s the case, then it’s important that you don’t get taken by an investment scam.
No Honor Among Thieves
Unfortunately, there are countless advertised income-producing opportunities, both online and offline, which are nothing more than an attempt to empty your bank account of some hard-earned money. If you fall into one of those traps, you’ll end up losing cash instead of earning it.
Here are a few of the more infamous investment scams:
- Pyramid schemes – You invest a little money upfront for a work-from-home effort and then make a fortune by recruiting other people to do the same type of work on your behalf. The idea is that the people you recruit will recruit others and then those people will recruit even more people, and so on. You earn a cut from all of the revenue earned from people who are part of your team. People in pyramid schemes usually end up giving up once they find it too difficult to recruit people.
- Ponzi schemes – A fraudster asks for an investment upfront, and then uses that to pay back people who invested before you. Basically, the con artist in this case is promising returns and only able to pay back those returns by continually duping people into making an investment. Eventually, somebody is going to get stuck.
- Pump-and-dump – This is a stock market scheme in which a fraudster pumps up the price of a stock with news about the company. Once the stock has reached a high, the fraudster sells his or her shares and everyone else who bought the stock is left holding the bag.
- Advance fee fraud – A fraudster promises to buy your worthless stock shares if you join a program for a fee. Once you’ve paid the fee, the fraudster never buys your shares and you’re out the money you paid for the fee.
- Offshore scams – By now, almost every American has received an email from a Nigerian prince who needs cash moved into the United States. Rest assured that eventually you’ll be asked to provide a bank account number and that number will not be used to make a deposit. I remember once receiving a letter from an Indonesian KFC. It was so random. Something about Colonel Sanders being secretly alive and how I was somehow his long lost great-niece and only remaining heir to the KFC Kingdom. I LOL-ED FOR DAYS.
If It Sounds Too Good …
One of the best ways to avoid scams of any kind is to remember the advice that your mother gave you: If it sounds too good to be true, it probably is.
Here are some ways that fraudsters tailor their sales pitches to make their promises sound just a little too good.
- The phantom riches tactic – The fraudster will promise you a life of ease, riches and unlimited time with your family.
- The source credibility tactic – Sometimes, a fraudster will try to sound like an authority on a subject and promise you they’d never steer you wrong. For example, you might hear something like: “As a former IRS agent, I can promise you that this is the best way to avoid paying taxes.”
- The reciprocity tactic – The fraudster will offer to do a favor in exchange for you signing on to a particular scheme. For example, he or she might offer you a 50 percent reduction in commission fees.
- The scarcity tactic – The fraudster tells you that you’d better act fast because the opportunity is disappearing quickly and only a few lucky people will get in on the action.
Warning Flags Are Just as Red as Stop Signs
Although scammers get more and more clever with each passing year, there are familiar themes that characterize their attempts to rob you. Here are a few red flags that indicate signs of investment fraud:
- Guarantees – If you’re being guaranteed anything resembling wealth without risk, then you’re probably being viewed as a sucker by the person who’s doing the promising.
- Unlicensed work – If you’re being asked to sell securities or sophisticated deals without being licensed, then you’re almost certainly looking at a scam.
- Consistent returns – Any investment opportunity that promises consistent returns is promoted by someone who either doesn’t understand investments or who is lying. In either case, you should avoid the investment.
- Complex strategy – If the strategy is too complicated to understand, it’s probably because someone is trying to keep you in the dark.
- Pushy salesperson – If the salesperson or broker seems overly pushy, then you’re likely talking to someone who is anxious for a commission and might be willing to lie to get it.
The bottom line: Scams abound, so it’s best to be vigilant. There are simply too many unscrupulous people in this world for you to go into any investment opportunity without some due diligence. Keep an eye out for warning signs when you encounter potential opportunities and you’ll avoid becoming a victim.
I’m curious to see how many you have personally interacted with these types of scams?