The Amateur Financier

Well, well, well, it’s already Wednesday, the middle of the week, the time when everybody starts thinking about the weekend (as if they haven’t been doing so since the last weekend).  It’s also a good time to cover one of those unfortunate, but necessary, topics: avoiding scams and the scammers who would like nothing better than to take your money.  I’m not going to be able to cover all the types of scams out there, as that number clocks into the millions (and even more sadly, increases all the time), but these few general tips should help you to avoid most of the scams that are out there:

1. Don’t Put All Your Money In One Investment or Firm: If you find a highly successful investment, it’s tempting to put ever increasing amounts of money into said investment.  After all, why keep your money where you are earning a paltry return when you could be earning a much higher level of income with one sweet investment?  Well, one reason is because that sweet investment might not be all that it’s cracked up to be (ask anyone who invested with Bernie Madoff).  By keeping your investment money in a variety of investments at different companies, you can prevent a scam (or even a more common occurrence, like poorer than expected investment returns) from derailing your monetary plans.

No, no, no, those are COLOR schemes; that's not what we're talking about all!

2. Know Your Scams: It’s much easier to spot a potential scam if you know what sort of scams are out there.  While there are a nearly endless number of scams and schemes that have been tried in the past (and probably an endless number that will be tried in the future), they tend to fall into a limited number of different broad categories.  If you learn to recognize the most common types of schemes that are used, like Ponzi Schemes, Pyramid Schemes, and Advanced Fee Scams, you’ll be in a much better position to protect yourself if they are tried on you.

3.Watch Out For Out-Sized Return Claims: It’s a fact of life: we’d all like to make big money with little time or effort.  It’s also a fact of life that the opportunities to do so tend to be few in number and limited primarily to people who really don’t need more money (say, the billionaire daughter of a wealthy hotel magnate).  If you do receive an email, letter, or even a phone call offering the opportunity to earn thousands of dollars for a few hours of work, or talking about investments that can return 200% of your invested money in days, be skeptical, and assume that they are highly delusional, at best, and scams to get your money at worst.  Speaking of unsolicited email and phone calls…

4. Don’t Give Out Personal Information UNLESS You Initiate Contact: Many scammers, online and off, want to get your personal information, in order to get to your money or apply for credit under your name.  If you limit the organizations you provide such personal information to those you contact (rather than the ones that contact you), you can minimize the chance that your personal information will be taken and misused.   It’s not impossible for illegitimate organizations to get your personal information if you follow this advice (particularly if they sound like a legitimate offer, such as those mentioned above), but you’ll greatly decrease both your risk and the chances that you’ll suffer big losses.

5. Don’t Give Cash To People You Don’t Know: There are lots of opportunities nowadays for you to find yourself wanting to give money to people you never met, from online ‘friends’ to Nigerian Princes with gobs of money they want to get out of the country.  Resist this urge: unfortunately, there are far too many people online who will pretend to befriend you or beg you for help, only to take advantage of your generosity.  Don’t give in, or you’ll simply encourage them to take advantage of other people (as well as finding yourself out hundreds or even thousands of dollars).  Be particularly wary if they want you to wire them the money; this is a favorite method of scam artists due to its untraceable (and unrecoverable) nature.

6. Keep An Eye On Your Finances: It’s possible, in spite of all the advice just given, that you’ll find yourself the victim of some sort of scam.  It can happen to the best of us.  If you keep watch over your finances, you can catch problems like this (as well as other financial problems, like overspending or investment under-performance) before they cause you too much trouble.  It’s not always easy to do, but the money and effort you can save by knowing where your finances stand and whether there are any unexpected problems is well worth it.

What tips do you have to avoid scams?  How would you suggest preparing yourself and your bank account(s) to keep your money safe?

It’s becoming almost a monthly event: there was a security breach last week, allowing hackers to access people’s personal information.  I mentioned a few months ago about how the Playstation Network was hacked (and subsequently shut down), certainly a dark day for most online gamers.

Now, though, it’s a major bank, specifically Citibank, that has been hacked.  To add insult to injury, the method used by the hackers sounds like something I could do, and since I am barely tech savvy enough to keep this blog up and running, that’s something.  By opening their own accounts, signing in, and replacing their account numbers with the account numbers of other bank customers in the web address line, the hackers were able to acquire personal information from a number of Citibank customers.  It is almost scary how easy it sounds to do that.

It's amazing how easy it has apparently become to get credit data from online sources.

Now, with such high profile break-ins in the news, you might be a little worried about your online security.  Unfortunately, much of the ability to protect your secure information is out of your hands; you can do everything right, but if your bank (or credit card company, or any number of places where you have some personal finance information stored) ends up being hacked or otherwise has its security compromised, your personal information could still fall into the wrong hands.

Still, that’s no reason to make it easier for hackers to get to your personal data.  While there are some things that are outside of your control (how your bank formats their account web addresses and the ability to leap from one to the other, for example), but there’s still plenty you can do to help keep your financial information to yourself.  For example, you can:

1. Be Careful When Contacted By Email: In our increasingly wired society, there is a good chance that you receive some (or even all) of your correspondence with your bank(s) via email.  Unfortunately, the same advantages of email for your bank (cheap, quick, easy to automate) also make it advantageous for those who want to gain access to your account illicitly.  The best thing to do: treat every email like it may be fraudulent, and use the appropriate caution.  If you are contacted by one of your banks and told that you need to log in to deal with some issue online, got to the bank’s website directly, sign in to your account, and deal with the issue (if there is an issue) that way.  That way, you won’t accidentally give your personal information to inappropriate sources.  On that note:

2. Don’t Give Out Financial Information UNLESS You Initiate Contact: If you want to engage in all the advantages of online commerce, you’re going to have to provide your financial information to someone.  But only do so when you started the transaction.  If you receive an email or other contact that wants your personal information, just say no.  Instead, as above, make sure that you, personally, enter in the appropriate website and ONLY provide your information when you are sure about the company you are dealing with.

3. Be Careful About Social Networks: It’s very tempting to drop your guard when you are on Facebook, Twitter, Linkedin, and the numerous other social networking sites out there.  After all, you are surrounded by ‘friends’ and ‘followers’; why would they want to hurt you?  Unfortunately, social networks are an attractive target for hackers; from sending out emails posing as the social network operators to creating fake profiles to worm their way into your list of friends, those who mean you harm have lots of ways to take advantage of social networks.  A good guideline to follow: don’t share any information on social networking sites (whether on a public ‘wall’ or in a private message) that you would not want to be shouted out loud on a crowded street corner.  (On a similar note: Be cautious about what you share on social networking sites, period; sure, now you have no problem with pictures of you chugging beer and flashing the camera, but ten, twenty, thirty years from now, do you really want your children, friends, or coworkers to have pictorial proof of your wild-child days?)

4. Keep An Eye On Your Accounts: Just in case you are getting the feeling that computers cause nothing but trouble, let me put your mind at ease: computers can be a great asset in preventing illicit activity.  If you make sure to monitor your accounts on a regular basis, you can be sure to catch any fraud before it gets too far, allowing you to prevent the worst of the damage.  If you do notice anything is wrong, be sure to contact your bank or other financial institution so they can work with you to prevent further theft (and hopefully reverse the theft that has already happened).

5. Make Your Passwords Hard to Guess, and Change Them Regularly: I’ve discussed the importance of changing your passwords at least twice a year before, but it bears repeating.  (Of course, you can (and if you fear you’ve been hacked, should) consider changing them more often, but I understand that it’s hard enough to keep track of all the passwords you need nowadays without changing them every two weeks.)  You’ll be less likely to have your accounts hacked if your passwords are complex (with letters (both capitalized and lower case), numbers, and symbols, if possible) and difficult for someone else to guess.  A password like ‘Abc123′ is just begging to be guessed, while something like ‘Meh27nE19%’ is unlikely to guessed by random chance.  Make sure you write down your passwords somewhere safe (encode them if you want an added layer of security), don’t share with anyone, and change them regularly (and not just by shifting one letter at the end), and your accounts will be much more secure.

There you have it, several ways to make sure that your banking is as safe and secure as possible.  Here’s hoping that when the next story about financial data being stolen breaks (as seems to be nearly inevitable), your data won’t be among the data that is lost.

You might have heard by now, but there was a major hacking event over the past week. The PlayStation Network, where thousands of gamers congregate to play online, has been hacked.  Yes, the ‘hackactivist’ group (that is, a group that using hacking to avenge perceived wrongs) ‘Anonymous’ hacked into the PlayStation Network, and apparently has stolen information about its users.

While Sony, the company that runs the PlayStation Network, does not believe that credit card data from its customers has been stolen, it is still cautioning its members to take appropriate cautions with their data, as “out of an abundance of caution we are advising you that your credit card number (excluding security code) and expiration date may have been obtained”.

Pretty harrowing stuff, hunh?  There’s something about identity theft that gets the blood pumping in this modern age.  Luckily, if you feel that you may have been a victim of identity theft, you don’t have to sit back and wait for something to happen before you can act.  Here are a few things you can do if you suspect you might be a victim of identity theft:

1. Put a Fraud Alert on Your Credit Reports: A fraud alert is when you alert the three credit bureaus (TransUnion, Experian, and Equifax) that your information may have been stolen, and that creditors should be concerned about requests for new sources of credit made in your name.  Having fraud alerts in place will make it harder for any would-be identity thieves to use your information to open new accounts and otherwise use your identity to make a profit.  It will last for 90 days, so if you are still afraid that your identity is at risk three months from now, you will need to renew the alert.  It’s not a sure thing, as creditors can ignore the presence of an alert and provide an identity thief with credit in your name; but it will limit the number of options that an identity thief has for getting credit in your name.  And if they do…

2. Get Copies of Your Credit Reports: Placing a fraud alert will allow you to obtain a free copy of your credit report from each of the credit bureaus.  If you order your credit reports and notice any fraudulent information, particularly any accounts or charges you don’t recognize, you’ll need to resolve them, and make sure that you check your credit report to make sure that it has been resolved.

3. Close Compromised Accounts: If you find that one or more of your accounts has been hacked (or that you have open accounts that you don’t remember opening), you’ll need to close them.  Contact the companies in question, first by phone, but also by mail (using copies, NOT originals, of documents to support your claims), and explain the situation.  Depending on the company’s specific policy, you should be able to close the accountant (and reopen it, if you so desire, with new Personal Identification Numbers and passwords) without too much trouble, although you may have to put some more effort into the process.

4. Report the identity theft to the local police and FTC: You need to notify the appropriate authorities to let them know about the identity theft incident.  By alerting the local police (or the police in the area where the theft occurred) and the Federal Trade Commission (FTC), you can let them know more about the situation and get the ball rolling on resolving the issue.

Hopefully, you won’t find yourself in a position where you need to deal with identity theft, but if you do, there are ways you can limit the damage done and regain control of your life.  Good luck!

Picture this: A famous rapper, most famous for surviving injuries that would kill most people, starts to use Twitter, one of the most popular methods of communication to come along in recent years, to promote a small company’s stock.  It turns out that he isn’t simply spreading news about a company that he feels does good work, but rather holds millions of shares of the stock and is attempting to drive up the price in order to cash out.  And drive up the stock price he does; the ticker price more than triples after a few short tweets from our rapping friend.  The kicker is that the stock itself is not that solid of an investment, having shaky loans and losing business quarters on its books; after a short boost due to the rapper’s promotion, the stock has resumed its decline.

So, is this a story about the hazards of investing in penny stocks, my attempt to show you how inexpensive investments can be manipulated by unscrupulous ‘investors’ and boosted to undeserved highs just in time for those who are promoting them to cash out and laugh all the way to the bank?  Oh, how I wish that were case; I can’t claim to come up with story this good.  Instead, apparently 50 Cent did exactly what I just described; he bought millions of shares of H&H Imports, a small company that makes its money (or rather, loses rather prodigious amounts of money) by buying and selling women’s handbags.  He then tweeted up a storm, talking up the stock and encouraging his followers to buy it, bumping up the price of this little stock and enabling his investment to increase in value by millions of dollars.

50 Cent - Investing Genius, or Master Con Man?

Again, this is too good to be made up.  It combines one of the most common sort of frauds in existence (a pump and dump plan), a big celebrity, Twitter, and a down trodden penny stock that otherwise, probably wouldn’t be on anyone’s radar.  I don’t know that I could have come up with a better cautionary tale if I tried.

The Lessons From This Story

There are so many lessons that someone who’s spent the past two plus years studying money, personal finance, and investing can draw that it’s nearly scary.  I almost don’t know where to begin.  Let’s start with one of the most obvious lessons:

-Beware of people promoting specific stocks or other investments: The first thing you should draw from this sordid little tale is that there are frequently motives beyond enriching you that writers and other commentators can have.  If I, or anyone else for that matter, starts to pimp (to stick with the rap vernacular) a particular company or investment, you should view those recommendations with an extremely skeptical eye.  Yes, the promoter might genuinely believe in the company and think it’s a good investment, but there is a possibility that they are trying to manipulate you into playing the greater fool and paying a premium for an investment they will happily leave in your hands.  Of particular concern are…

-Watch out for those penny stocks: Penny stocks, like those issued by H&H Imports, are particularly susceptible to use by fraudsters.  Unlike the stocks of large companies like Google or Ford, penny stocks tend to be much lower in price, much more lightly traded, and have much less media coverage from legitimate sources.  If 50 Cent (or anyone else seeking to do something like this) wanted to do a pump and dump with a large company like Exxon, they’d need to put a lot more money into buying up shares, and would have a lot harder time generating enough buzz to substantially boost the trading prices.  When dealing with penny stocks, particularly penny stocks recommended by others, you’ll need to do all due research, and then some more on top of that; even legitimate penny stocks might be unwittingly used as pawns in a scam.

-Be skeptical about suggestions on social media sites: While we’re on the subject of skepticism and scams, let’s take a moment to note that social media has its own role to play in some of the latest scams.  While most of us have gotten used to the fact that our email addresses may be targeted by scammers promoting everything from specific penny stocks to generic V!@gR@, we don’t yet have the same level of concern about comments and suggestions provided through social media sites like Facebook or Twitter.  After all, we think, all the people we contact there are our friends; why would they try to deceive us?  Unfortunately, we need to keep up our vigilance; whether due to their own nefarious purposes or because they genuinely believe the promoter’s pitches, you can find your friends and followers sending along scams to you.  Remain skeptical, even about offers your own mother sends to you.

-Do your own research: Of course, it wouldn’t matter how many tips you got, or how questionable some of them are, if you make a point of doing your own research on any tip that you get.  Some preliminary research on H&H Importers could have revealed the deficiencies on their books and the other problems faced by the company.  If you opt to invest in individual companies, one of your first steps will be to learn how to interpret the financial information available to you, starting with some of the commonly used valuation ratios that professional analysts rely on for their own investment recommendations.

These are some of the major lessons I hope got reinforced by this particular incident.  There are other lessons, like ‘Don’t trust 50 Cent for stock recommendations’, but if you can keep the above suggestions in mind while reading through any investment suggestions from 50 Cent (or any other people you may be following on Twitter or other social networks), you’ll be much better off.  Good luck to all of you as you go about investing!  (Including you, 50 Cent, if you happen to read this.)