10 Investing Red Flags You Should Be Able to Spot

In spite of the ever-changing state of the economy, investing is still a good way to increase your nest-egg and save for the future. Unfortunately, for every legitimate investment opportunity, there are half a dozen scams trying to do nothing more than steal your hard earned money.

If you’re interested in investing but aren’t sure where to start, here are 10 scams you should be able to spot no matter how clever the scams think they are.

  1. Pyramid Schemes

Pyramid schemes are probably the most famous investing scams in the world. You invest money into a pyramid and get paid out dividends — if you bring in more people after you to invest. The more investors you bring in, the more you can potentially make, but you leave the people beneath you on the pyramid struggling to bring in still more people to enable them to make money.

If your investment requires you to bring in other people, whether they say it outright or not, it’s probably a pyramid scheme. Run away, fast!

  1. Precious Metals

Investing in precious metals like gold or platinum might seem like a good way to keep your money secure. The price of gold is climbing steadily, and gold itself projects an aura of both wealth and stability. Scammers play on that feeling of stability to encourage people to invest in gold or other precious metals, pocketing the investment money after encouraging people to invest thousands of dollars, even cashing out their entire retirement.

Putting your money in precious metals is a worthy investment, but you’re better off buying physical gold bullion and storing it yourself — in a bank or a personal safe — to ensure your investments are secure.

  1. Loan Scams

Loans aren’t generally looked at as an investment, but they can be a new way to secure your future — either personally or in business — as long as your loan isn’t a scam.

Lenders who aren’t interested in your credit history, aren’t registered in your state or won’t provide any information about their location or business history is probably not a lender you want to do business with. Loan scammers tend to prey on people who need money fast, for whatever reason — whether you need new tires for your car or a new roof for your house.

Avoid anyone who promises quick loans without credit checks or is pushing you to sign on the dotted line before you’re ready. This kind of predatory lending is one of the biggest scams in the world.

  1. Promissory Notes

Promissory notes can be a legitimate form of investment. Companies issue them to raise money, with the recipient of the promissory note offering a loan to the company for a limited period of time with a promise of return on the investment.

Unfortunately, it’s often easy for scammers to make it look like they’re affiliated with a company, offering fake promissory notes to individual investors. These scammers get the initial investments and disappear with them, instead of repaying the loans like a legitimate company would.

Promissory notes are not generally sold to the average individual investor. If you’ve got someone offering you a promissory note, be skeptical but do your research. See if the investment opportunity is registered with the SEC or whatever office regulates securities in your state.

  1. Oil Investment

The oil industry is one that creates good opportunities for investment. However, it’s not the best option for first-time investors because it requires a long holding period, and turning your investment into a cash profit can be difficult. There’s even the potential for loss if the well turns out to be dry. That said, it can still be a good place for an experienced investor to make some money — which also makes it the perfect environment for scammers.

Anyone who promises high returns or touts these investments as a once-in-a-lifetime opportunity is probably just out to separate you from your money. Ask questions and ensure they’re answered —  anyone refusing to answer questions is a huge red flag for any investment opportunity.

  1. Currency Trading

Currency trading, also known as ForEx (for foreign exchange), consists of buying and selling currency to make a profit. It’s an open market, meaning anyone can trade, and it’s always open because currencies are always changing.

As with any investing scam, anyone who is promising better than 100% returns or other guarantees that are too good to be true is probably a scammer and should be avoided. There are also a number of forex investment managers popping up, and it can be hard to tell the difference between a scam and a legitimate investment manager. Listen to your gut — if something doesn’t feel right, it probably isn’t.

  1. Prime Banks

Prime banks tend to play on our desire to belong to an exclusive club. The minds behind these scams will convince you that you’re lucky to be able to invest because these opportunities are usually only offered to the ultra-wealthy by invitation only. These programs are designed to entice you to invest your money because it makes you one of the elite, with the promise of a high yield without the risk of traditional investments.

When it comes down to it, though, it’s just another scam designed to steal your money.

  1. Advance Fee

Advance fee loans are another loan scam like the ones we discussed earlier, with one big difference — they ask you to pay a fee in advance as a condition for loan approval. They request large fees, sometimes upwards of several thousand dollars, when your loan is approved.

Legitimate brokers do sometimes require fees for loans, but they will disclose their fees beforehand — it is also illegal in several states for loan brokers to charge advance fees. Make sure you check your state’s laws before you do business with any brokers, and be suspicious of any brokers that request a fee in advance.

  1. Unregistered Investments

A good rule of thumb to remember is that any legitimate investment opportunities have to be registered with the Securities and Exchange Commission (SEC). Legitimate opportunities that are not registered with the SEC do exist, but they should be treated with the utmost caution and not purchased before you’ve spoken with a trusted financial and investment professional.

Overall, though — avoid unregistered investments if you want to protect your portfolio and ensure the best possible outcome.

  1. Offshore Investing

Offshore bank accounts have a mysterious appeal, often associated with criminal masterminds or tax evaders. Offshore investing, on the other hand, is often associated with scammers — moving money across the borders makes it easier for investing scammers to avoid both detection and prosecution.

Watch out for investors that promise no-risk, high-return investments, refuse to provide information about financial statements or are not registered with your local SEC or affiliate. The biggest problem with these offshore investment scams is that once they have your money, they tend to leave the country, moving the money as they go. Once they’re outside of your home country, it can be difficult if not impossible to get any money back or any legal recourse.

Don’t let these scam descriptions scare you off — investing is still a great way to save for the future and make your money work for you. Just make sure you keep your eyes open for scammers and use secure investment channels wherever possible. Then, you’ll be able to watch your dividends grow.

Anum Yoon is a personal finance blogger who loves empowering others to take control of their finances. She is the founder and editor of Current on Currency.