There are
ways to watch out for these schemes and avoid them. While these tips
won’t guarantee that you’ll never invest in one, they’ll at least help to
reduce the likelihood of it happening.
Don’t invest in something just because your
friends/colleagues/associates do.
There’s
no guarantee that they’ve done their homework about an investment. Furthermore,
if the seller is part of that group, it’s likely everyone trusts this person
and won’t have checked into his past or his investments. Many folks who run
Ponzi schemes target people who go to their church or belong to their country
club. Yes, you can take the referrals of people you know, but you have to
research the referrals. Find out why your friends like the seller, what their
financial plan is and how they are paid their dividends. Check with
professional organisations for information about the seller. Because the money
isn’t really invested as it’s purported to be, the scheme requires new
investors to keep it going. But those new investors, if no one else invests
after them, won’t get their money back. Their money has either gone to previous
investors or has gone to fund a lavish lifestyle on the part of the person in
charge of the scheme.
Don’t believe the hype
According
to www.lawyersandsettlements.com, if something sounds too good to be true, it
almost certainly is. Many Ponzi schemes offer ridiculously (and sometimes
impossibly) high return rates that seem to operate independent of market
conditions. If someone promises you returns of 35 per cent when everyone else
is getting three or four per cent, something’s not right.
Don’t invest in anything you don’t
understand
You might
not be a seasoned investor but you should be able to understand where your
money is going and how it will make money for you. Ask questions and don’t let
the seller dismiss your concerns. Make sure you understand exactly what’s happening
to your money. If the seller doesn’t have decent answers or you don’t
understand the investment, walk away.
Don’t invest everything with one person
If you
invest with two people, not only are you diversifying your investments, you’re
reducing the likelihood that you’ll lose all your money. Yes, it takes time and
effort, but if you invest everything with one person and that person is a con
artist, you’ve just lost everything.
Avoid emotional investments
If you’re
excited about the investment, take some time to go over the details and ensure
they make sense. Don’t believe sellers who say you’ll be part of an elite group
when you invest your money—the only elite group you’ll be part of is the group
of people desperate to get their money back when they find out they’ve invested
in a Ponzi scheme. When you get emotional about an investment, you’re less
likely to ensure you’re protected.
Research
Learn
about finances. Ask questions and demand sensible answers. Don’t let anyone
tell you that you shouldn’t get caught up in the details—because the details
are important. Demand to see the paperwork—the prospectus or disclosure
statement—before investing. You don’t have to be an expert about all aspects of
investing, but make sure you understand the basics, so you can tell when
something doesn’t seem right. If the seller gives the names of various
companies that you would be investing in, look those companies up to ensure
they really exist. Check with the Securities and Exchange Commission to ensure
the investment is registered. Check to ensure the seller is licensed.
Understand your investment style
Make sure
your financial seller respects that style and your risk tolerance. The SEC
lists five questions every investor should ask when considering the next
investment opportunity: Is the seller licensed? Is the investment registered?
How do the risks compare with the potential rewards? Do you understand the
investment? and where can you turn to for help?
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