We are in a society where investing has become more accessible than ever. The market presents lots of opportunities ranging from real estate, stocks, and even agriculture. It is clear that the platform is set for us to grow wealth. However, we remain wary of common investment scams that are reaping the seeds of investors! Notably, the victims of these fraudsters are the investors who still believe in get-rich-quick schemes. You need to learn the tips and tricks to identify and stay safe from such scams.
Well, are these the issues that sound familiar to you? Come with us as we take you through common investment scams and practical strategies to thwart them. You get the power to stay safe by staying informed and vigilant.
1. Ponzi schemes
Ponzi schemes remain one of the most common investment scams! Their selling points normally originate from high returns. They understand that you are out there searching for high-return investments with no risk! We all want to double our money or even triple it if that is possible! Unfortunately, such investments often turn out to be frauds. Ponzi schemes create an illusion of high returns, and they only collapse as soon as you have all your investments in there.
How to Identify a Ponzi scheme:
- Firstly, they do not have a clear or understandable business model.
- Secondly, as soon as you join, they start pressurizing you to recruit new investors
- Moreover, the catch is always that promise for high returns with zero risk.
What to Do to Avoid this Investment Fraud
Well, smart investors will do their due diligence before allocating money to any investment! Make sure the company’s business model is clear. Additionally, ensure that your question on how they generate profits is answered. You can always consult a financial advisor before you make that final decision to invest.
2. Pyramid schemes
Someone once told me that you will never know that you are in a pyramid scheme until you find yourself at the bottom of the pyramid! Well, this is very true. Pyramid schemes rely on the recruitment of new investors to earn commissions from every recruit. Sadly, they do not have any product or service, and this scheme fails when there are no more victims.
How to identify pyramid schemes:
- Firstly, you know you are in a pyramid scheme if the emphasis is on recruitment.
- Secondly, if your main source of income is the incentive from recruiting rather than a service
- Finally, they do not have any tangible goods or services.
What to do to avoid such investment scams;
Run away from any investment that wants you to start recruiting others as your main source of income. No legitimate business generates income through recruiting. You can get this by analyzing how the company is generating their money.
3. Pump and dump schemes
While this investment type is not a common investment scam, it is important to understand how it operates. The fraudsters in this scheme inflate the price of the stock by promoting it using misleading statements. Consequently, the fraudsters sell off their stocks, which eventually causes the stock price to fall. The unsuspecting investors are left with worthless stock.
How to identify a Pump and Dump Scheme:
- If you suddenly receive unsolicited investment tips through your social media, run!
- instances where there are sudden spikes in stock prices with no corresponding business growth
- Moreover, examine their sales tactics. High-pressure sales tactics are a telltale signal.
How to Avoid Pump and Dump schemes;
It is important to do your own due diligence on the stock or any asset that you intend to invest in. Secondly, be wary of unsolicited investment advice. If you must invest in the stock market, focus on the stocks that are listed on the securities exchange.
4. Fake Initial Coin Offerings (ICOs)
The cryptocurrency market is now booming, and everybody is talking about it. While it is true that blockchain and cryptocurrency are avenues for investment, it is also a gateway for scammers to steal your money. Fake Initial coin offerings lure investors with high returns. Sadly, the platform disappears as soon as you invest.
To identify fake ICOs;
- Firstly, check if they are promising high and guaranteed returns.
- Secondly, confirm the developers and the team members. Fake ICOs present unverified team members.
- Moreover, ensure that they have a clear white paper outlining the project.
Protect Yourself from this Investment scams;
To be safe, only invest in those with verifiable information. Treat any guaranteed returns with contempt! Everybody is on the lookout for such investments, and if they ever existed, investors could have seized them.
5. Real Estate Scams
Did you know that a single line that you assume to read in your estate deed can lead to a loss of money? While it is true that real estate is among the best investment options, investors need to be wary of its scams. Fraudsters are out there selling nonexistent property with a misrepresentation of detail.
Red Flags in Real Estate:
- Firstly, when buying any real estate, be sure that it is not way below its market value.
- Secondly, in case you find yourself under pressure to close the deal without any legal procedure, then you are in for a scam!
- Finally, if sellers are unwilling to provide ownership documents, run!
How to Avoid Real Estate Scams:
You can always be safe if you take time to verify the legitimacy of the property and seller. An advocate is your friend in any real estate transaction. A lawyer should be able to review the contract before you make any payments. In case the deal is too good, then obviously it’s not a good deal!
6. Forex Trading Scams
Finally, forex trading is becoming one of the common investment scams that is affecting the majority of young people. There are cases of unscrupulous brokers who promise you very high returns. However, their actions are unethical, and they manipulate trading conditions. Some even vanish with your investment money!
Signs of a Forex Scam;
- Firstly, they promise guaranteed profits with little or no risk.
- Secondly, they are unregulated.
- Finally, they use high-pressure tactics to force you to invest quickly.
What to Do to avoid investment scams;
Trade with brokers that are recognized by the Capital Markets Authority. If your investor is based in an offshore location with no regulations, then maybe it’s time to avoid even making your first deposit. Reviews never lie! Check the customer reviews and testimonials before you commit your money.
Also Read: Are Your Investments Safe? What to Look Out for in Money Markets
Final Thoughts
It is true that investment scams are on the rise, and we must remain vigilant in order to avoid falling victim. However, you can avoid this by understanding the common scams, recognizing the red flags, and taking the necessary precautions. First, always conduct thorough due diligence, then seek advice from financial professionals, and finally, avoid making hasty investment decisions based on promises of high returns. After all, investing is about growing your wealth safely and steadily, rather than chasing the latest too-good-to-be-true opportunity.
Therefore, stay informed, stay cautious, and most importantly, stay safe