Every investor knows that investing comes with some degree of risk. However, just because there is risk involved does not mean that fraud is acceptable.
Although many investors try to protect themselves by researching investments before agreeing to anything, sometimes scams are difficult to spot.
Fraudsters use various selling tactics to get investors to commit to investment opportunities they aren’t sure about. It is up to you to sniff out these situations before you end up losing all of your investment money.
If you are a serious investor and are concerned about falling into an investment fraud scheme, here are six tips to help you avoid investment fraud.
Step #1: Avoid Investment Fraud By Verifying Seller License
The seller will most likely be required to be licensed in the state where they are selling the investment.
Sellers must be licensed under the Department of Financial Institutions (DFI). If they’re not, you’re probably dealing with investment fraud.
To determine if the seller is indeed licensed to sell their investment, reach out to your local DFI division.
Step #2: Ensure The Investment’s Registration
The local DFI must register investments for products. Reach out to the Securities division near you to determine if the state department registers the investment item.
You can also contact the securities regulator of your state, the U.S. Securities and Exchange Commission, or the Financial Industry Regulatory Authority to get help or report fraudulent behavior.
Step #3: Avoid ‘Act Now’ Sales
Whenever you are faced with an opportunity to make a significant investment, you should always have enough time to make a thoughtful decision.
If sellers use high-pressure sales tactics to try to get you to invest quickly, you are most likely caught in the middle of a scam.
Opportunities that require you to act fast are likely traps for investment fraud.
Pressure tactics and phrasings like “For A Limited Time Only” are in place to make the investor feel pressured. You should always have time to consider an investment offer.
Step #4: Avoid Unexpected Offers
If you receive an unsolicited call pitching an investment opportunity, this is most likely investment fraud. Calls like these are most likely scams, so maintain your skepticism if you find yourself in this situation.
Step #5: Investment Without Documentation
If you’re ever presented with an investment opportunity to buy without any written materials about it, walk away. Lack of documentation is an attempt to avoid a paper trail and to get away with investment fraud.
Scams like these are frequently being presented via social media and elsewhere online. Never trust an investment opportunity without looking into the research first.
Step #6: Be Skeptical of Dream Offers
If the opportunity sounds too good to be true, be skeptical. Anything that is advertised as “risk-free” is likely investment fraud.
If an investment opportunity suggests you’ll make much more than you’d expect, this could be a risky investment or a scam. In the end, you will most likely lose money, regardless of whether it is a legitimate opportunity or not.
How Else Can You Protect Yourself?
Make an effort to diversify your investments. By not putting all of your money in one place, you avoid losing more money.
You can combine high and low-risk investments to offset any losses or potential investment fraud that may occur.
Stick To Low-Risk Investments
For some investors, diversifying their investments is sufficient enough to combat losses. Others might be less comfortable with losing more money at once.
Consider your personal tolerance level for risk and act accordingly.
To avoid investment fraud or losing out on money, keep your mind on lower-risk investments. Keeping your investments safe will still provide you with a solid return without causing you to lose your peace of mind.
Investors looking to build up their finances at a slower pace with less risk are the best fit for this investing style.
Get A Trust Fund
To further protect your investments, establish a trust fund to keep your investments safe and away from possible investment fraud.
You can apply as many restrictions as you need to feel secure about the safekeeping of your money.
When it’s time, your assets will be handed over to the people you intended them for. With trust funds, the most critical component is finding a trustee to oversee your trust for you.
Make sure this person or institution can meet your needs before you agree to accept their help.
Keep An Eye Out For Manipulative Salespeople
Known as the “halo” effect, sometimes investors can be swayed by con artists who are charming and seem trustworthy. Just because someone appears friendly or qualified does not mean that they are.
Always do your research before committing to an investment. Look for legitimate qualifications before giving the opportunity the green light.
The Give And Take Scam
Sometimes, fraudsters will offer a free seminar or meal to promote their product. In return, they expect you to show reciprocity by investing in their product.
You should never feel rushed to invest. It does not matter if someone “offered” you a workshop or lunch. Do your research and take your time before deciding if an investment opportunity is legitimate.
The Peer Pressure Tactic
The oldest trick in the book is when a seller says, “Everyone is buying it.” This childish peer pressure tactic is only an attempt to get you to buy into investment fraud.
Anyone who pitches a product based on what everyone else is doing is not someone to trust. Anyone who focuses on the number of sales they have made is trying to pressure you and is possibly attempting investor fraud.
Unless you can tell that these aspects are secure, your best plan of action is to walk away from the opportunity altogether. Avoid these situations to play it safe and avoid running into fraud.
The Bottom Line
To avoid investor scams, verify the seller’s qualifications, ensure they are licensed and research the investment opportunity.
Take your time researching investment opportunities and never feel pressured to invest!