Last Updated on 5 July 2021 by Dan
Unfortunately, Investment scams aren’t something new and they aren’t going away. There’s some horrific stories of people who’ve lost thousands or their life savings and sadly scammers have become increasingly elaborate.
On much more happy note, there are ways that we can learn to recognise the signs of investment scams and avoid them, which is the focus of today’s article.
Your guide to the Wilderness just finished reading one of the always excellent BBC longreads on the subject of Ruja Ignatova, the “CryptoQueen” behind OneCoin. I fully recommend giving the full article a read but the short version is there is every sign OneCoin was a scam, and Ms. Ignatova has gone missing.
It’s unspeakably sad to read of those OneCoin was sold to, some of whom have invested large amounts and in the most extreme cases their life savings. It’s honestly sickening.
The problem of Investment Scams
One of the difficult things when first looking to invest is knowing what’s good and what’s bad, and unfortunately the internet can be slightly the “Wild West” in this regard.
I was appalled when writing recent articles on credit card debt just how many appalling rip-offs I found when doing research on previous articles. I purposefully chose not to run ads on this website despite that being my original intention as I was finding the keyword of “finance” hitting onto this blog was providing adverts linking schemes I was simply not comfortable with.
As mentioned in a previous article – I fully believe you should be investing your money – but The Financial Wilderness always believes this should be carefully and safely.
So I wanted to write a guide today all about protecting yourself – questions to ask, things to watch out for. Let’s begin!
Promises to build wealth fast may be an investment scam.
We all want it – the big home run hit. The lottery win. The thing that solves all our problems and worries in one fell swoop, leaving us with a lifestyle with abundance and ease.
There’s something in our psyche that absolutely loves the idea of taking one big risk that pays off massively, showing ’em all we found that one thing everyone else passed by. We love a success story – but beware, because they’re very very rare.
Investment scams use image to sell
One tactic scammers like to use is to post pictures of themselves enjoying their success – but often these are salespeople. The flashy car? Rented for the day. The designer clothes? Returned because they “didn’t fit.” Image and reality are two very different things online, and it’s worth thinking about the why in respect of how someone is showing their emotions.
Investment scams create an illusion of time pressure
The issues with many scams or questionable investments are they play on our emotions – often we’re made to think that someone has this investment which is “about to take off” or be “the next big thing” – this creates a sense of time pressure that makes you think they’re rare.
Often this argument is made powerful by the fact that it’s price has legitimately been going up, which causes us to fear being left behind and be the one who looks stupid. The cryptocurrency market is absolutely awash with these, often promoting particular coins that in reality have questionable underlying value.
To put this in context, this is nothing new! In 1637 (yep, that old) the Dutch Tulip Bulb suddenly became incredibly fashionable. Word spread – you needed these tulip bulbs…..EVERYONE was about to want their produce. So people began stockpiling them. Historical records are limited but it’s estimated they started to sell for 10 times the price of an average craftman’s annual salary. Suddenly, the market realised that the demand wasn’t there – and the price collapsed.
You might spend £2 on a lottery ticket hoping to hit the jacket. You wouldn’t spend £10,000 on tickets. (If you would, I’m tempted to march over there right now and give you a good talking to!) To invest in these is doing just that – many products of this nature (especially in the cyptocurrency/ICO) space are essentially untested prototypes, and that’s being rather generous to some of the products in that market.
So if you’re hearing you can’t miss out, let that be your trigger for alarm bells – not reaching for your wallet. Always check those emotions.
Investment scams mislead on risk
Some of the most dangerous culprits out there tell us exactly what we want to hear. Many of the most dangerous culprits feature words like “risk free” and guaranteed returns.
Sounds awesome right? Buyer beware – we can challenge this with a good logic test based on some of the real truisms of investing:
“When we invest, we trade away some benefit of having our money directly to hand. In essence we always accept some kind of risk, in exchange for potential return.”
“It makes logical sense to minimise risk and maximise return”.
So taking this – if something is advertised as risk free, why is it giving me a return? No one gives you money for doing nothing. Chances are you’re not being told about the risk.
Guaranteed returns? Pshaw. Investing is fundamentally to take some from of risk, you just want it to be sensible. Always look for the evidence, and if someone isn’t being honest with you about that, run.
You can really protect yourself by learning about what these products are doing with your money. We have a guide here to some of the most common investment products which can act as a starting ground to your own research.
Avoid investment scams by knowing who you’re dealing with.
There’s an old saying that it takes a lifetime to build a reputation, but it’s true – people will keep investing with somewhere that treats their money responsibly.
Make sure you research who you’re giving your money to. How long have they been in business? Are they well known? How quickly can you withdraw your money? How much are they charging you for your services?
The Wilderness always advocates investing with a well-known company with a strong history and reputation.
Never ever give your money to anyone you don’t know the full background of, or anyone that’s cold-called you. That means putting some time into research, but it can pay off.
Avoid investment scams by checking regulatory classification
The world of badges and approvals can be a rather misleading one. Just because a firm says it’s approved by a regulator doesn’t mean that actually in the case, and you should check any firm against the FCA register.
Even if it is, it’s not as clear-cut as you might believe (part of the business can be legitimately approved, whilst other riskier activities can actually be unregulated activities).
Keep your eyes and ears open, folks! The FCA’s ScamSmart website has some additional tips and allows you to report and suspicious schemes.
And that’s it!
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