Investing

Eight Clear Signs That An Investment Opportunity Is Probably A Scam

By  Karen Banes

Disclaimer: In order to make Wealthtender free for our readers, we earn money from advertisers including financial professionals and firms that pay to be featured on our platform. This creates a natural conflict of interest when we favor promotion of our clients over other professionals and firms not featured on Wealthtender. Learn how we operate with integrity to earn your trust.

It has been estimated that almost 90,000 Americans were involved in investment scams in 2021 alone, losing a total of around $1.58 billion. This indicates an increase of around 82% based on the previous year, so to say that these scams are becoming more prevalent would be an understatement.

While most of us believe we would never fall for a scam, some of them are extremely sophisticated, and no one is entirely immune. Here are just a few of the red flags to watch out for when it comes to keeping your money out of the hands of scammers.

It came out of the blue

Unsolicited financial advice is rarely sound. Any opportunity that presents itself to you ‘out of the blue’ needs to be treated with extreme caution. This is the case, no matter what the source. Even if the recommendation appears to come from a friend. In fact, financial information that appears to come from a friend, electronically, is a sign that a friend may have been hacked, especially if they wouldn’t usually share something like that.

The best financial advice is generally advice you seek out, from a professional. Even if you are sure an opportunity that’s presented to you is a sound one, the first step should be to run it past your financial advisor, if you have one, or someone else you trust. There’s a reason scammers tend to target more vulnerable and isolated people. It’s easier to spot a scam when you discuss it with others.

You discovered it on social media

No, you didn’t. It discovered you. The Federal Trade Commission (FTC) has reported that 54% of investment fraud losses originate on social media channels and has described social media as a gold mine for scammers. Over a quarter of the people who reported losing money to fraud in 2021 reported that the scam started on social media with either an ad, a post, or a private message.

Remember that social media makes targeted advertising very simple, so if ads crop up that are suggesting investments that you have been considering recently, that’s not ‘a sign’. That’s simply social media companies selling your data to advertisers. Instagram and Facebook are the most common places to stumble across a scam, but it also happens on messaging apps such as WhatsApp, Telegram, and Snapchat, as well as other networking and sharing sites, from LinkedIn to TikTok.

It sounds so good

Scammers always over-promise. Typical red flags include the promise of very fast or consistently high returns, especially if they are ‘guaranteed’. Buzzwords to watch out for are ‘risk-free’, ‘trade secret’ and anything along the lines of ‘95% of investors don’t know this’. Investment scams take many forms, and new ones emerge all the time, but they usually come with a pretty hard sell and a legitimate-sounding reason why this investment is different from and better than, all the others.  As always, if something sounds too good to be true, it is.

One or two small details are off

A common investment scam involves scammers actually ‘cloning’ or copying the websites of legitimate brokers, exchanges, and other financial institutions. The site may look the same as the legitimate site, have the official brand logo and the same words and images, but the URL will be slightly different. They will even quote the license number of the legitimate firm, so if you look the firm up via a regulating body such as FINRA, it will appear to be listed and regulated.

Maybe at this point, you will spot those one or two details that are wrong. The phone number or email address may be listed as a different one on the regulator’s site. At this point, you are on to the scammer, but even now it’s possible they will remain cool, and simply say that the details on the regulator’s site need to be updated.

It involves cryptocurrency

Investing in cryptocurrency is a legitimate enough strategy if it suits your knowledge base and risk appetite. If, however, you’ve never been interested in cryptocurrency and you’re suddenly being asked to buy it in order to make a specific investment or transfer, that’s a huge red flag.

Cryptocurrency offers a certain amount of anonymity and crypto transactions are hard (though not impossible) to trace. There have been a ton of crypto scams recently, especially Initial Coin Offering (ICO) scams and exit scams, where a new cryptocurrency is offered, investors are found, but the coin itself doesn’t end up ever being successfully launched, and the developers or promoters simply disappear with the investors’ money.

It involves transfers using hard-to-trace methods

Bank transfers leave a trail. Credit card payments can be reversed. If someone is insisting you can only access their amazing opportunity using a particular transfer method such as online electronic wallet transfers, third-party payment methods, crypto, or pre-paid cards, it could be because they’re harder to trace.

You’re being pressured

Legitimate financial advisors won’t generally apply time pressure on you to make an investment. Scammers almost always have a time-sensitive opportunity that you have to invest in by a certain date in order to profit.

It’s not just time pressure you have to watch out for. Scammers will pressure you into investing more than you can afford and investing even more later on. They’ll also pressure you into investing in a certain way, which as already mentioned, may involve hard-to-trace transfers, and into keeping their ‘secret’ because they can only share it with a limited number of people.

Something just feels off

Some scammers are excellent at what they do. Many aren’t. They will tend to leave clues that they are less than legit. If something about an investment opportunity doesn’t feel quite right, trust your gut. Step back. Take professional advice, and stay safe.

Karen Banes

About the Author

Karen Banes

I’m a freelance writer specializing in online business, personal finance, travel and lifestyle. I also work as a content creator for hire, helping brands and businesses tell their stories, grow their audiences, and reach their ideal customers. I’ve lived, worked and studied in six countries, across three continents. Stop by my blog TheSavvySolopreneur.net to learn how to run your own (very) small business on your own terms. You can also connect with me at my website KarenBanes.com or follow me on Medium.com

Disclaimer: In order to make Wealthtender free for our readers, we earn money from advertisers including financial professionals and firms that pay to be featured on our platform. This creates a natural conflict of interest when we favor promotion of our clients over other professionals and firms not featured on Wealthtender. Learn how we operate with integrity to earn your trust.

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