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Tips for Avoiding Scams
We would all like to think that
we could spot a scam easily.
Unfortunately, most of us cannot!
Con artists are friendly people.
They look professional and appear
successful, and they are not
always strangers. Some contact us
through church groups or ethnic
associations. Some are people we
know as friends and neighbors.
You can lose a lot of money if you
fall for an investment scam. How
do you avoid having this happen?
We would all like to think that
we could spot a scam easily.
Unfortunately, most of us cannot!
Con artists are friendly people.
They look professional and appear
successful, and they are not
always strangers.
There are important principles
to follow:
1. Buy only from licensed or
credentialed financial professionals.
Stockbrokers and investment
advisers must be licensed to sell
you stocks, bonds, and mutual
funds, for example. Avoid buying
investments from persons who are
not licensed to sell those products.
2. Review your account statements.
Check all statements when
you get them and notice the
details, including all changes to
your investments. Make sure your
correspondence is sent to the
investment firm's official address.
Ask questions right away about
anything that seems incorrect,
unauthorized, or unclear. If your
investment company's broker or
advisor refuses to comply promptly
when you ask to withdraw
money from your account, does
not provide proper statements, or
does not give satisfactory answers
to your questions, complain in
writing to authorities.
3. Buy investment products
that you have chosen and checked
carefully. Stick to buying investment
products that you have
sought out yourself and investigated
carefully. Buy products you can
understand, after you have
reviewed written details.
4. Make sure you are buying
registered investment products.
Most legitimate products have to
be registered with the SEC and in
the state of sale (see the Resources
section below). Check them before
you buy.
5. Ignore spam email and "hot
tips." These types of messages are
sometimes meant to trap unwary
investors. Hot tips can come from
people you know, or be left as
"accidental" messages on your
answering machine. Fake websites
and blogs are sometimes set up to
provide false information about
investments.
Because "spam" – junk e-mail –
is so cheap and easy to create,
fraudsters increasingly use it to
find investors for bogus investment
schemes or to spread false
information about a company.
6. Use the internet to invest
wisely. If you want to invest wisely
and steer clear of frauds, you must
get the facts. Never, ever, make an
investment based solely on what
you read in an online newsletter or
bulletin board posting, especially if
the investment involves a small,
thinly-traded company that isn't
well known. And don't even think
about investing on your own in
small companies that don't file
regular reports with the SEC,
unless you are willing to investigate
each company thoroughly
and to check the truth of every
statement about the company. For
instance, you'll need to:
-
get financial statements from
the company and be able to analyze
them;
-
verify the claims about new
product developments or lucrative
contracts;
-
call every supplier or customer
of the company and ask if
they really do business with the
company; and
-
check out the people running
the company and find out if
they've ever made money for
investors before
7. Be careful if you are invited
to invest by phone, at a meeting,
or at a social event. Get details
about any investment in writing,
and be sure to check them out.
Never make a snap decision when
you are first approached with an
investment idea. If someone pressures
you to buy quickly, offers to
send a messenger to pick up your
money, or claims that the offer is
only good "right now" - just say no.
8. If the promoter says it's
practically a "sure thing" - don't
buy it. All investments carry some
level of risk. Don't buy into any
product if the salesperson says
there is no risk to it, even if you
like and trust that person. A salesperson
can be the victim of a
scam, too.
9. Never make an investment
payable to the salesperson. Always
make your payment to the investment
company.
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