Q:

How do you avoid investment scams?

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Quick Answer

To avoid investment scams, an investor should perform independent research on an investment, familiarize himself with the salesperson, remain current on common fraud practices and be wary of unsolicited investment offers, notes the Office of Investor Education from the U.S. Securities and Exchange Commission. Investments can be researched using the Electronic Data Gathering, Analysis and Retrieval database, or EDGAR.

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Full Answer

Investment scams often involve guaranteed risks along with high returns, says the Office of Investor Education. With most investments, the more the investor risks, the more he has to gain, and the safer his money is, the lower his return. An investor should research how much a specific investment is currently yielding and compare it with how much the proposed investment promises to yield.

An investment scam might also involve some form of reciprocity, such as a free seminar if the individual promises to make an investment, according to the Office of Investor Education. The investor should take the material home to look it over and check the salesperson's or company's credentials and qualifications before committing any time or money to the investment. Investors should also be wary of individuals no matter how trustworthy or honest they appear. Additional resources used to investigate investments and report fraudulent investments include the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and the North American Securities Administrators Association.

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