Be it any situation or a scheme, watching out for red flags can actually save you from getting into a serious problem. Scams have become quite common with that people should also be made aware regarding the red flags to spot in order to save themselves and others as well from bearing any loss.
A Ponzi scheme is nowadays the most famous one, new investors’ money is used to pay old investors. Ponzi schemes are quite appealing or in other words “tempting”, which is why so many individuals have been taken advantage of throughout the years. That’s why you should understand how to recognize them, as well as other risky investments with comparable qualities.
The best thing you can do is to keep your eyes and brain open to such schemes. How can you do that? Here are some warning signs to look for:
1. Little risk, high rewards:
The so-called “guaranteed results” are one of the top ways to make someone push towards falling into the trap. Be wary of any investment opportunity that claims to offer very low risk and very high profits, or even worse, that is “guaranteed” to deliver high returns. Considerable potential returns are usually accompanied with high risk.That is the way the financial world operates. Lottery tickets, perhaps? It’s a high-risk, high-reward situation. Bonds issued by the government? It’s a low-risk, low-reward situation.
2. Consistent returns:
Take a closer look if you’re offered the opportunity to invest in something that produces very consistent profits. Know that, over many decades, the stock market has tended to rise, but that its performance varies from week to week, and from year to year.
3. Unregistered investments:
When you invest, you should make sure that everything you put your money into is registered with the Securities and Exchange Commission (SEC) or state regulators. “Registration is significant because it gives investors access to information about the company’s management, products, services, and finances,” according to the SEC.
4. Unlicensed sellers:
Do not hesitate or be afraid to ask for, license. While we’re on the subject of sellers, investors should be aware that they, too, should be registered or licensed. Federal and state laws both require it. Check the status of anyone with whom you’re dealing.
5. Complex and/or hidden strategies:
Many Ponzi schemes employ complex and/or hidden strategies. Because they’re con artists, their genuine character shouldn’t be revealed. It’s typical to be informed that the investment’s fantastic outcomes are attributable to a hidden investing approach.Alternatively, you may be offered an explanation that is too convoluted to comprehend perhaps because it makes no sense at all. Being overly trusting can lead to disaster.
6. Unlicensed sellers:
While we’re on the subject of sellers, investors should be aware that they, too, should be registered or licensed. Federal and state laws both require it. Check the status of anyone with whom you’re dealing.
7. Receiving payments is difficult:
Last but not least, if you have problems withdrawing money or aren’t receiving promised payments on schedule, you may be involved in a Ponzi scheme, according to the SEC. Some investors who attempt to withdraw funds are advised to keep their money in the account and are promised higher profits in exchange. Be skeptical and cautious.