How to Avoid Investment Scams

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how to avoid investment scams

Scams, scams, scams. They are everywhere and we are made aware of them through other people’s first-hand experiences. But once in a while, there are a few really good ones that escape our reasoning. That is, they manage to run away with our hard-earned money.

Understandably, we all want to make our money work hard for us so we try to pick up investment opportunities that will give us the best returns. Sadly though, bad guys lurk as predators on these opportunities without regard for others’ welfare.

The best we can do is to be educated in avoiding investment scams.

Question: Why do some people end up with an investment scam?

Here’s my two cents on that matter. When it comes to money, two major human emotions are involved: fear and greed. Same goes with investing. The problem is that when people are presented with get-rich-quick schemes with screaming signs of fraud, their greed bulb still lights up. There is an “irrational exuberance,” so to speak, because…who doesn’t want to rake in cash fast?

Sadly, there’s rarely such thing. You have to work hard for it. Even making money in the financial markets will require you to spend years mastering a skill.

The best we can do is to educate you on how to avoid investment scams.

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How to Avoid Investment Scam?

It should not be hard to find

If it’s a legitimate investment company or business, it should not be hard to find in any business registry, the IRS, or U.S. SEC (if it involves selling securities). Looking up a legitimate business should not feel like finding a needle in a haystack. They are easy to find — you can hear about them on the radio, or see them on billboards or television. And most importantly, you can hear their satisfied customers talk about them with delight.

It should not pressure or force you to join

A good investment should give you enough time to “think about it” rather than pressure you to join. Making money through investments, these said investment businesses should understand that investing money is a risky venture whose pros and cons need to be properly weighed out.

On the other hand, you yourself should have a proper handle on a situation when a salesman is acting all excited to get you started. If you’re not comfortable with it yet, if you need further research, say NO and don’t feel bad about it. It’s better to be safe than to be sorry later on.

Others will pressure you through the gentle force of reciprocity. If you’ve been offered something for “free” but are asked to return the favor once you are in their debt, then you know what I mean. Don’t give in just yet. Stay firm and grounded. Tell them you need to do more research before committing to something as serious as investment.

It should not make guarantees

Remember this mantra: “If it’s too good to be true, it probably is.” To the uninitiated, it might, however, be difficult to tell because they don’t know yet what a reasonable return looks like.

OK, pop quiz: is 100% a month return a month too good to be true or not? No, it’s not. It’s crazy.

Don’t be duped into the idea of a hundred-bagger investment because most likely, none of them are legitimate. A good return on investment is a result of good old hard work and patience; it does not happen overnight. It comes in increments that build up over time.

Research before you invest

Get to know the management of the company. How long have they been in business? Who runs the show? How do they earn money for their investors? Where do they operate and where are they registered? These are some of the stuff you need to know and understand first before making any decision.
When in doubt, just chicken out.

Choose a good management

Look for signs of good management and professionalism. A good business, if it’s confident about itself, will not go into unnecessary trouble just acquire customers because they know that customers are the ones who will come to them. They need not spread rumors, hate, and negativity just to entice their prospective clients to switch to them. Doing so only invites trouble which is not good for the business where your money is.

Know your liquidity

Is it easy to take out your money if you want to back out from the said investment, or do you have to jump through hoops to get your money back? A good investment should give you such flexibility or control of your own money.

Take for example mutual funds. They may have a minimum holding period for your investment but if you choose to back out, you can withdraw your investment anytime for a minimal fee.

Investing is an important step toward financial independence. However, one should approach it with caution and patience. It’s better to err on the side of caution than to lose everything you have worked for.

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