Red Flags: How To Know if You’re Investing in a Scam?


Investment scams have been around for a long time. For example, the namesake of the Ponzi Scheme lived in the 1920s and managed to scam millions of dollars.

There are also documented scams in the 19th century when Gregor MacGregor amassed a fortune by selling parts of a non-existent country to unsuspecting people.

There are also scams through networking, newspapers, radio, and televisions. But nothing has accelerated the scammers more than cellular phones and the Internet.

We always read these kinds of stories, but why does no one seem to learn from other people’s experiences?

People never learn from the past.

The sad reality is that people never learn from the past, so they are bound to repeat its bitter result. There are thousands of people who previously fell victim to financial scams, but no one is still learning.

The cycle goes like this: Someone starts a scam, and then he manages to recruit some people. The first “investors” gain money from the investment of other people. Then with the great joy of their newfound way towards financial independence, they start inviting their families and friends.

Everything is going great until money stops coming in, and the investment is revealed for what it truly was… a scam. After that, only bitterness, self-pity, anger, and other negative emotions leave relationships broken. The sad reality is these scams are not isolated cases.

Why do people fall for investment scams?

There are different faces of scam victims. Some are greedy for easy money, and some are afraid of missing out because a friend or relative starts earning money, while some are just gullible.

However, some people fall victim to these money death traps because they are in dire need of a huge amount of money ASAP. Unfortunately, when emotion starts to think for you, you may be an easy target of these scams.

The following are the usual warning signs to look out for to know if you’re investing in a scam. It can be one or a combination of signs.

Remember that if something is too good to be true, it probably is.

1. They guarantee high returns with little to no risk.

The most critical part is to identify if an investment is a scam is if they are offering guaranteed high returns.

An investing principle that I learned early on was no investment vehicle can guarantee a positive return. Investments can show historical performance, but never 100% sure.

Many legit investments have the potential for high returns, but they can never be guaranteed.

So if someone offers you a no-risk investment with high returns, you can run away as fast as possible from them because they will probably offer a scam.

Remember another investment principle, the higher the risk, the high the reward, and vice versa.

2. The promise of return is very quick.

The original Ponzi scheme happened in the 1920s. The scam was that the investment would double your money in 90 days.

Of course, the early adopters will earn money and share this once-in-a-lifetime opportunity with friends and family. Unfortunately, this scam will eventually reveal itself, leaving investors shocked, angry, or in denial.

Sounds familiar?

The second red flag of an investment scam is how fast the return is. No honest and legitimate investment vehicle will ever offer a fast ROI with a guaranteed return in less than a month.

Get-rich-quick scams are named as it is because they offer a quick way to get rich, preying to people’s greed.

3. You need to pay money to get money.

Advance Fee Scams are those investment schemes that require someone to pay some money now in exchange for a lot more money later.

Nigerian Prince Scams is one example of these scams sent through email. These emails will ask you to transfer some money in exchange for a significant amount once “they get their money out of the country.”

It may sound ridiculous, but many people today still fall victim to these early-Internet scams.

Another example of an advance-fee scam that I encountered will require you to “buy a job,” which will give you PDF document to encode to a text file. Then once you complete the “job,” they will pay you.

However, you must first complete several jobs before they pay you and there is a limit to the jobs you can take for a month. Simply stated, you need to buy a job to work for the job that will pay you after you complete it.

Lastly, I wrote this article after learning that a close family friend is “investing” in cryptocurrency. When I heard the story, I immediately knew that it was a scam because they are required to pay P100K+ before getting their “profit” of P1M+.

You must immediately ask why can’t they just take the P100k from the P1M that you won? Unfortunately, I recently learned that they have already sent the required money but are just waiting for the “bank clearance” before they can claim the million.

(It is difficult to write regarding scams without quotation marks)

4. There is always a sense of urgency.

The next investment scam red flag is the sense of urgency that its investors require. For instance, many Internet investment scams offer a once-in-lifetime opportunity to the first few people.

A different example is the common email phishing scams will tell you that your bank account is suspended and requires immediate attention, or else it will close. They will add a link that, if clicked, will lock your device or take your personal information, commonly called ransomware.

Another example of scams requiring immediate attention is the lottery scams telling you that you won thousands or millions of pesos to a lottery you never joined. Funny as it may sound, but many people still fall for this.

Scammers are leveraging on the emotional side of people to gain a financial advantage over them.

Final Thought:

Financial scams will continue to happen as long as people don’t know how to identify them. Money is a behavioral topic and does not require above-average intelligence to understand. However, as long as people have a faulty understanding of how money works, many will continuously fall victim to scams.

Remember that if it is too good to be true, it probably is. If you think that an investment or financial opportunity seems to have no wrong, then it probably is a scam.

Related: 9 Ways To Protect Yourself Online

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