Hopefully you’ve never been financially hoodwinked, or any other way for that matter. When protecting yourself, going on offense is generally the best defense. An interesting show, American Greed, profiles a wide variety of white collar criminals each week. Most are familiar with Bernie Madoff, but scam artists work all levels of the income spectrum. Each time I watch that show or read of someone’s financial mishap, I always wonder if that could happen to me.
Let’s dig in to a few stories and learn from their debacles to prevent scam artists from monkeying with our money.
1. If it sounds too good… Sage advice, right? Historically, stock market returns span the range of 8-10% a year. Anyone promising sky high returns or risk free guarantees requires a side eye. If it sounds too good to be true, run! Hoping for the get rich quick scheme or attempting to get something for nothing seems to be a common thread among many victims.
2. Don’t invest if the details are clear as mud…A recent interview with Jermaine Johnson, my financial adviser, reinforced the need to understand your investments first. Anyone trying to impress you with industry jargon or nonstandard English deserves a red flag. Keep it simple. Pump your breaks if an investment doesn’t make sense or you feel pressured to make quick decisions with your funds. There’s no harm in sitting this one out.
3. Be wary of hot tips from friends and family…Scams also tend to spread by word of mouth. Watch out for a friend, who knew a friend, who knows this guy. Keep your investments in the professional realm with established firms. At least if you encounter a sour grape, you have more legal avenues for restitution. Several victims were hit with huge tax bills after turning over their retirement funds to “investment vehicles” not recognized by the IRS. In one case, the tax bill exceeded $100,000. Ouch!
4. Have you done your research…The Google is an amazing tool. Use it! In one case, a huckster posed as a concert promoter looking for investors. An attempt to visit the nonexistent concerts would have surely changed investor’s minds. Seek wise counsel from a number trusted sources. One story described a convicted criminal bilking people out of millions (through his wife) as an investment guru while BEHIND BARS!!! True story! Check business track records with the Better Business Bureau, Securities and Exchange Commission, or even your local attorney general to find out what complaints if any exist. Novice investors should play it better safe than sorry.
5. Read the fine print…I just read an interesting story on the increase of housing loan modification scams. People receive official looking paperwork offering to help for an upfront fee. The HAMP program NEVER requires upfront fees. I received one such letter, and the back reads in small print, “United Law Center is not sponsored by or affiliated with your lender. Information gathered was obtained through public records.” This may not be a scam, but it’s definitely not associated with the HAMP program even through the paperwork tries hard to appear so. Recycle.
Again, the best defense is a great offense. You are more vulnerable when you trust, but do not verify. Protect your hard earned cash and your peace of mind.