“When promised quick profits, respond with a quick no”. Warren Buffet hit the nail on the head with that quote, and the investment mogul should know! Most people have a hard time understanding the basics of finance, let alone the complicated investment stuff. With that being said, there are some things you should always keep an eye out. The CGS Team is sharing 5 red flags of an investment scam to take note of when presented with an investment opportunity. Take caution if any of these items come up.
#1: Guaranteed Returns
If someone is promising you guaranteed returns, put your guard up. Outside of CDs and Money Market accounts, which both offer fixed interest rates, nothing is guaranteed. When you invest in something, you are investing in its well-being. There’s never a guarantee of how good or bad it will do. Unfortunately, no one can predict the future.
#2: Move Fast or Lose Out
When it comes to investment scams, most scammers will try to pressure you with “limited-time offers”. By creating a sense of urgency, they are trying to get you to agree to something without having much time to actually think about it. If they threaten you with to decide now, or lose out forever approach, it’s likely not a good investment option.
#3: Really Bad Investment Advice
Regardless of how great the investment opportunity sounds, if a person is giving you bad investment advice, they don’t have your best interest at heart. If someone tells you to cash out your 401k, take out a personal loan, or give up your savings, run away. Any action that doesn’t make much sense (common sense, that is), should be seen as a red flag.
#4: No Risk Involved
Similar to the guaranteed returns promise, if someone is claiming there is no risk involved with their investment, it’s likely a scam. Whether you are investing in stocks, a new business, or any other form of investment, there is always a risk that you can lose your money. A new business model or product idea may sound great, but there’s no way to determine how it will actually perform.
#5: Unofficial Referrals
Here’s what The Consumerist had to say about relying on referrals for investment ideas, and we couldn’t agree more: “Swindlers will be sure to find money to pay back initial, well-connected investors, with the intention of having these folks spread the word to their moneyed friends.” Make sure you trust the person who is giving the referral. If they haven’t actually been involved with the investment or the potential scammer, make sure you do your due diligence and research the investment before moving forward.
Related: Easy Ways to Start Investing Now
We would all love to make our money work for us, but being cautious is extremely important when you’re thinking about investing in something you’re not quite sure of. Do your research and trust your intuition, if the investment sounds too good to be true, then it probably is. Have you been approached with an investment scam before? What red flags set you off for potential investment opportunities? Leave a comment below to share your thoughts!