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It
is unfortunate but true that
unscrupulous people and companies do try
to take advantage of unsuspecting
investors. The Internet has made it a
lot easier for these predators to reach
a mass audience. To avoid potential
rip-offs, you need to be vigilant, and
you need to ask questions, lots of them.
While there are many types
of fraudulent activities floating around
the Internet, one of the most common
scams resembles a pyramid scheme, by
which shady operators initially appear
legitimate by using money coming in from
new recruits to pay off early stage
investors. If you participate in such a
plan, you might make a little money
right away, only to be encouraged – or
required – to buy a membership so you
can boost your earnings. However, when
the pyramid gets too big, it will
eventually implode, because, at its
heart, it is a dishonest arrangement
that can never truly be funded enough to
reward all investors.
The Securities and Exchange
Commission (SEC) has issued guidance for
you to defend yourself against get rich
quick schemes. Here are a few of the
SEC's suggestions:
If it sounds too good to
be true, it probably is. This piece
of advice has been around a long time,
and it is just as valid today as when it
was first uttered. If someone promises
you a high rate of return, be
suspicious. Compare what's being offered
with current returns of well-known stock
market indexes.
Investigate a company
before you invest. The company that
pitches you an offer may well have an
impressive-sounding name, but that does
not mean much. Before you spend a
dollar, contact the secretary of state
where the company is incorporated to see
if the company is, in fact, a
corporation, and whether it is in good
standing. You can also call your own
state securities regulator to see
whether the company, or whoever is
promoting the offer, has a history of
complaints or frauds. If the company has
only a post office box or is unwilling
to provide you with information about
its location or management, you are
looking at a red flag already.
Ignore testimonials.
If a company is fraudulent, it will not
have much trouble generating fake
testimonials from satisfied customers.
Say no thanks to
guarantees. When a promoter
guarantees you a high rate of return,
you can be assured there is something
amiss. In the investment world, high
returns are typically only achieved by
higher-risk vehicles, and they don't
offer guarantees. In fact, no reputable
financial professional will promise you
a specific return on a stock or other
variable security.
Forget about shortcuts.
Most of the schemes you will
encounter promise big returns in short
periods of time. But in reality, that
hardly ever happens. Substantial growth
in investments typically occurs over a
long period of time - which means that,
as an investor, you need patience and
discipline above all else.
Ultimately, there is no
shortcut to investment success. You need
to evaluate each investment opportunity
based on your individual goals risk
tolerance, portfolio balance and time
horizon. This approach may not provide
you with hot opportunities, but it will
not burn you, either. |
