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Alarming statistics from a recent study by the Carlson Law Firm reveal that Americans lost $3.82 billion to investment fraud in the last year. With new artificial intelligence tools at their disposal, fraudsters have law enforcement officials scrambling to keep up.
The report also shows investment scams affect Americans no matter where they live. California, Florida, and Texas ranked highest in the total money lost to fraud, while Maryland, New York, and Nevada residents were the most likely victims of financial scams.
These numbers highlight the urgent need for individuals to be cautious and informed regarding their financial futures. However, financial experts say it’s possible to remain vigilant and avoid becoming the next victim.
These tips from financial experts can help investors avoid fraud and safeguard their financial future.
Verify The Legitimacy of Companies and Individuals
One of the fundamental steps in avoiding investment fraud is to work with legitimate companies and individuals.
Financial planner David Berns from Truadvice Wealth Management advises, “Everyday people can protect themselves from investment scams by ensuring you are always working with legit companies and verifying their credentials online.” Avoid clicking on ads or suspicious emails, and when in doubt, reach out to financial professionals to confirm the authenticity of the communication. Additionally, researching the company or individual making the offer and checking their credentials can help to make informed decisions.
Likewise, Myra Alport, Accredited Financial Counselor (AFC) and founder of Myra Alport Money Coach, cautions, “Never ever click on links or attachments from an unknown party. These emails may be poorly written with misspelled words, poor grammar, or punctuation.”
Jonathan Bird, Certified Financial Planner (CFP) at Farnam Financial, also suggests, “Avoid taking advice from someone who’s not a licensed investment advisor.” Always look for registered investment advisors listed on the Securities and Exchange Commission (SEC) website and check for any disclosures associated with them. This due diligence will provide insights into advisors’ professional backgrounds and help investors make more informed decisions. Narrowing the search to financial advisors who have earned their Certified Financial Planner designation also reduces the chances of hiring an unscrupulous individual.
Use Reputable Custodians
Bird also emphasizes the importance of using a custodian for one’s money. Reputable custodians such as Fidelity, Vanguard, and Schwab provide secure storage of customer assets, minimizing the risk of theft or loss.
Utilizing a custodian as an intermediary can protect investments and reduce the likelihood of falling victim to fraud. Bernie Madoff’s crimes are a stark reminder of the risks associated with giving money directly to an individual rather than using a reputable custodian.
Beware of High Returns With Little Risk
Fraudsters often entice unsuspecting individuals with promises of high returns and minimal risk. However, as Jonathan Bird advises, “Avoid anyone promising high returns with little risk. This is a huge red flag.” Remember that legitimate investment opportunities always carry a certain level of risk. If an investment seems too good to be true, then fraud is probably involved. Consider reporting it to the SEC and exercise caution before proceeding.
Educate Yourself
Understanding investments is crucial in avoiding fraud. As Joe Petry, Ph.D., CFP and founder of Mayfair Financial, suggests, “If you don’t understand the investment, don’t invest.” Take the time to research and learn about the investment product or strategy before committing hard-earned money to it. Such products can even include many mainstream investments like cryptocurrencies. Many people dive headfirst into cryptocurrencies without fully understanding the asset class and get burned.
Cobin Soelberg, M.D., J.D., founder of Greeley Wealth Management, suggests creating an “Investment Policy Statement” that can help an investor get clear on exactly what criteria they’re looking for in investments and what to do in certain situations – e.g., job loss, recession, housing market crash, etc. Soelberg highlights the importance of aligning investments with the Investment Policy Statement (IPS) to mitigate the risk of falling for fraudulent schemes.
Avoid Pressure Tactics and Scarcity Offers
Scammers often employ pressure tactics, creating a sense of urgency to entice individuals into making quick investment decisions. Justin M. Follmer, CFP and founder of Coastal Wealth Advisors, advises, “Don’t let yourself be pressured into making a quick decision.” Take the time to carefully evaluate the investment opportunity, seek advice from trusted individuals, and conduct thorough due diligence.
Scammers also often use the principle of scarcity to make their offers seem more attractive. They might say the offer won’t last or they have a limited amount of the product to offer. Staying calm and not making rushed decisions is crucial to avoid falling victim to investment fraud.
Seek Advice From Trusted Professionals
Financial advisors play a vital role in helping individuals make sound investment decisions. Consulting with a local financial advisor can provide valuable insights and guidance. However, just as with evaluating investment choices, it’s essential to be equally cautious when considering financial advisors.
As Nate Byers, CPA/PFS of Calculated Wealth, emphasizes, “Never trust anyone who promises a high return in a short period of time.” Anyone considering a financial advisor should engage in open and honest discussions with the advisor they are considering hiring, know the right questions to ask, and seek clarification on any concerns they may have. A financial advisor’s expertise and knowledge can help navigate investment opportunities and avoid scams.
Avoid Becoming a Statistic
In an era where investment fraud continues to pose a significant threat to individuals seeking financial growth and security, protecting oneself from fraudulent schemes is paramount. By verifying the legitimacy of companies and individuals, using reputable custodians, being cautious about high returns with little risk, educating oneself about investments, avoiding pressure tactics, and seeking advice from trusted professionals, it’s possible to safeguard one’s financial future.
Building wealth takes patience and diligence, and avoiding investment fraud is crucial to securing financial well-being. Stay vigilant and stay informed to protect against investment fraud.
This article was produced by Wealthtender and syndicated by Wealth of Geeks.
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