How to Spot Investment Scams

Every type of investment carries some degree of risk. However, while some investments are riskier than others due to their volatile and unpredictable nature, among these opportunities that can really yield returns, there are also scams disguised as potential investments. To avoid them, it’s essential to learn how to spot red flags. Here are the main things to watch out for.

The promise of no risk and high returns

As previously highlighted, no investment is devoid of risks. Usually, the higher the potential return is, the higher the risk. As a general rule, if you are being lured into an investment strategy that promises high returns, but low risks and the guarantee that your capital will be safe, you should be very careful.

Many investment scams promise a safety net in order to convince their victims the opportunity is worth it. If you want to make sure you’re not dealing with a scam, ask for more information. How will that scheme protect your capital, how will it generate such high returns, who can you turn to if you lose money along the way, etc.?

Any promise of high profits that seems too good to be true should be approached with caution.  

The pressure of investing ASAP

Scammers don’t have any time to waste. The more you prolong a fraudulent scheme, the more chances there are that you get caught. Usually, they act quickly and once they manage to get enough money, they’re gone without a trace. To be able to convince a lot of people to invest in their idea in a short timeframe, they’re often pushy.  This is one of the things most fake investment opportunities have in common.  

If the broker or an employee of the company that offers to invest on your behalf puts pressure on you and asks you to send money ASAP, you should proceed with caution. Do your research first. Find out where the company comes from, if it is legally registered in your state if there are any complaints from previous investors or any problems with the authorities, and only send money if you’re sure you’re entering a legal scheme.

Claims of successful results

To convince people to invest in their schemes, scammers frequently claim that they had success in the past with the same type of investment and helped many people achieve great returns. It is not uncommon to read or see testimonial videos of people who praise the opportunities and talk about how much money they’ve made.

Just because you see real people saying this, it doesn’t mean it’s true. If you want to validate their feedback, it’s a good idea to start investigating. Look for those people’s profiles. If they are successful investors, they’re certainly present on social platforms or communities. Try to figure out if those investors really exist and what their background is. If all you have is a name and a photo and once you start googling for that person you realize it doesn’t exist, this is another red flag.

Insider information claims

Another strategy fake investment schemes rely on to lure people in is inside information claims. Con artists often approach potential investors with inside information about a stock that could yield high profits. This is problematic for two reasons. On the one hand, you cannot verify the validity of the inside track you are being offered. On the other hand, it is illegal for someone to offer inside information about a company or stocks he or she has access to in order to attract investors.

Commissions for referrals

Investment scams often rely on referrals. While asking for referrals and offering a commission instead is not unusual in many lines of business, legit investment schemes don’t normally do this. Con artists that want to get rich quickly rely on this strategy because it is a real incentive for someone who is new to the field and hasn’t worked with legitimate companies before. The more referrals scammers get, the more they increase their chances of praying off people.

Finally, no matter what investment opportunities you encounter, even if you don’t spot the red flags above, it’s still worth doing some prior research before investing. Find out information about the company you’ll work with from financial institution directories, check their website, their media coverage, and even their social media profiles.