Tempting Offers, Hidden Dangers: Spotting Red Flags in Investments

Would you like an investment opportunity that offers a guaranteed 50% return every week with absolutely no risk? Me, too. Unfortunately, there is no such thing as a risk-free investment, and those who try to convince you otherwise are most likely after your money. Let's see why this is the case and learn about the tricks fraudsters use to part unsuspecting individuals from their hard-earned money.

Stock photo. Posed by model.

Every investment carries risk. Even options that are considered safe by most people, such as savings accounts and savings bonds, have some degree of risk. As expected returns increase, so does the associated risk. Generally, the higher the returns, the greater the possibility of losing some or all of your money.

Fraudsters invest a lot of effort convincing novice investors that the sky-high returns from their investments or strategies are "guaranteed" or a "sure thing." But promises of high investment returns, accompanied by guarantees of little or no risk, are classic red flags for fraud.

Another clear sign of fraud is when promoters of an "investment opportunity" pressure you to invest immediately, either by claiming the offer is only available for a limited time or only a certain number of individuals can participate. This tactic is often referred to as creating FOMO, or the "fear of missing out". A solid investment should be accessible and valuable over the long term. If it's only good for a short time, it's probably not a good investment.

Promises of high returns with no risk are rarely convincing, so fraudsters devise tactics to make their investment schemes seem credible. Often, they'll exaggerate or fabricate their credentials. They might claim affiliation with a renowned firm, boast about a prestigious education, or flaunt notable credentials. But even if their background seems impressive, it doesn't mean their investment advice is reliable. Never invest solely based on someone's perceived background.

Fraudsters also employ celebrity endorsements to win your trust. But a famous face doesn't guarantee a legitimate or suitable investment. Many celebrities may not vet the products they promote. Never base your investment choice solely on a famous person's endorsement.

Fraudsters often call out other scammers as another tactic to appear genuine. They aim to build trust by warning you about others who might deceive you.

You might notice the pattern that scammers primarily aim to earn your trust. Always consult multiple sources and avoid confirmation bias by considering opposing opinions. Conduct thorough research and carefully assess the risks before making any investment decisions.

All this talk about investment risk and losing money might sound scary, but the goal of this article isn't to scare you away from investing. The aim is to make you aware of potential signs of fraud and encourage you to learn investing strategies to mitigate risk.

For example, by understanding diversification and spreading your investments across different asset classes and sectors, you can balance losses from underperforming assets with gains from those that perform well.

Lastly, approach unsolicited offers or investment pitches that suddenly pop up on social media with caution, especially if you are unfamiliar with the promoter and the promised returns seem too good to be true. It's unlikely for someone to emerge out of the blue genuinely intending to make you wealthy overnight.