How to Spot an Investment Scam

How to Spot an Investment Scam

It’s quite easy to spot the con artists on a TV show: ominous music and devious facial expressions are definite giveaways. But without those Hollywood cues to help, would you know if someone were trying to gain access to your money under false pretenses?

Here are four questions to ask yourself:

1) Have you been promised fantastic returns with little risk?
Fraudsters often use terms like “high return” and “no risk,” but in reality, every investment carries some risk. The higher the promised returns, the more risk you should be comfortable carrying.

2) Have you been presented with a hot tip or inside information?
The problem is, you have no way of verifying whether or not “confidential” information is true, and a fraudster knows that.

3) Do you feel pressured to buy?
Disreputable people may use techniques like repeated follow-up phone calls, or use phrases like “act fast,” “one-time opportunity” or “buy now before it’s too late.” You should never feel pressured into a quick decision.

4) Did you receive an unsolicited phone call or email?
Email spam and phone calls from a stranger are still the most common ways that people encounter investment fraud.

Be on the lookout
Anyone with money to invest (or who can borrow to invest), however small the amount, is a potential target. In addition to the giveaways discussed above, be on the lookout for these warning signs of shady dealings:

  • Opportunities normally available only to rich people.
    You may be asked to state a false income to get in on an investment scheme that’s used by the wealthy. If you have to lie, it’s not right for you.
  • Foreign exchange.
    This kind of trading is complicated and dominated by well-funded firms with highly trained staff. Don’t fall for risky schemes falsely promising that you (or someone working on your behalf) can beat the system.
  • Offshore investments.
    The promise: earn high returns and avoid taxes. The reality: your money goes to someone in another country, likely never to be seen again, while you end up owing money to the CRA.
  • Pension tax loopholes.
    Schemes to withdraw money out of your locked-in retirement account without paying tax are usually fraudulent.

Check your sources
You’ve worked hard for your money. It’s prudent to do your homework and take precautions to safeguard it. Always do your own research into an investment, checking as many different sources as possible. Make sure the person with whom you are dealing is registered to sell investments. You can check with your province or territory’s securities regulator or the Canadian Securities Administrators. The latter has a simple search tool that lets you quickly check that an individual or firm is registered to sell investments.

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