There is a major downside to investing, and that would be the potential for being a victim of fraud or scams. While it would be nice to say that money scams are thing of the past, sadly this isn't the case. Just because there is the potential for a scam doesn't mean that you shouldn't try your hand at investing. The key to avoiding money scams is to simply follow a few simple guidelines.
- Only work with licensed professionals. Limit your investing so that you are only working with licensed or credentialed financial people and institutions. While it will not completely remove the potential for being a victim, it will seriously limit the possibility. The reason for this is that stockbrokers and investment advisers need to be licensed to sell things such as stocks, bonds, mutual funds, and other similar products.
- Check for registration. Most, if not all, investment products are supposed to be registered with the Security and Exchange Commission (SEC). A good way to check to see whether the product you are thinking of purchasing is actually legitimate or not is by checking with the SEC to see if it is registered/ If it is not registered, then ask why not.
- Ignore email requests. One of the more common ways that people are getting scammed these days is through email. If you receive any email that is asking for personal financial information, verify that it is legitimate before you respond. The easiest way that you can do this is by contacting the company itself. Do not use the contact information found in the email, but rather by what you can find in the phone book.
- Ignore party requests. A common tactic that some scammers use to look for marks is by asking for people to invest at parties, over the phone, or even at other types of meetings. If you are given any tips while at such events, get as much information as possible in writing so that you can do some research before you actually turn over any money. A legitimate investment opportunity should have no problem whatsoever with you doing this.
- There is no such thing as a "sure thing". Perhaps the biggest possible red flag of all is the simple little phrase "It's a sure thing!" There is no such animal, and all types of investments will carry some kind of a risk, and anyone that says otherwise is simply lying to you. Even if you like the person, don't buy from them since they could also be the victims of a scam themselves.