As we reach the middle of our series on investment scams, we’re going to take a little break from the world of liars, cheats and thieves, and take a look at some ways to protect yourself in general. If you take the following steps, you’ll be much less likely to be targeted by scammers or to fall for the numerous scams that exist out there in the world of finance. Here are a few tips that will help you to spot, identify, and avoid many of the scams out there, even for scams that haven’t yet been conceived:
1) Educate Yourself: Knowledge is power, and when you’re looking at investments, knowledge is also money. If you understand a variety of investments (at least in principle, if not all the gory details involved), you’ll have a much easier time recognizing the bullshit investment pitches you will encounter during the course of your life. If you know that stocks typically return about 10% a years (during the good years of the twentieth century, at least; many rather clever people maintain that the returns in the future will be going lower), it’ll be easier to call bull pocky on claims about miracle investments that can return 20% each month.
2) Be Leary of Everyone’s Advice, Even Friends and Relatives: No, I’m not accusing your cousin who keeps talking about her ‘hot stock investments’ of trying to scam you. But, there are any number of reasons why their advice might not be in your best interest; from not fully understanding their investments to being victims of scams themselves, your friends and family might be making suggestions that are not in your best interest. If you do get any hot tips, you can give them all due consideration, due thorough research, and decide whether it’s a legitimate opportunity or a scam; and if it is a scam, be sure to let your tipster know, so they can get out of it themselves.
3) Research, Research, Research: If you don’t understand an investment class, grab a book, check some websites, and do research to learn what’s going on. If you hear a hot tip, be sure to hit the books before you put down money. When you are trying to decide to what investment choice to make, what do you think you should do? That’s right, research; don’t put any money into something you don’t understand, and if you don’t understand an investment, be sure to break out the books and start to do research.
Some good places to start your research include the Security and Exchange Commission (SEC), which monitors publicly traded companies and the Better Business Bureau. There’s plenty of good information out there; it just takes some work to find it and sort out the good from the bad.
If you follow these steps, you’ll find yourself in much better shape when you next confront a possible scam. Build a broad financial education, be leery when your acquaintances offer investment suggestions, and do plenty of research BEFORE putting any money down; stick to a cautious approach, and your investment career will be all the better for you.