Red Flags Signal Possible Investing Scams

New report highlights Americans' susceptibility to investing fraud: Internet Scambusters #578

Americans lose $50 billion a year in investing scams and other frauds.

Often, it's because they trust the word of friends or family or fall for mouthwatering returns that are simply too good to be true.

They also fail to spot the most common red flags, says a new report from the Financial Industry Regulatory Authority (FINRA), which we detail in this week's issue.

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Let's get started...

Red Flags Signal Possible Investing Scams

Crooks can be quite discerning when it comes to investing scams -- they head for the best targets.

And who are the best targets?

They're male. They're smart. And, of course, they're relatively wealthy.

That's the word from a new study produced by FINRA, the Financial Industry Regulatory Authority.

That's not to say they're the only targets, but men are more inclined to take risks than women, says the report, and, for some reason, people with more money to invest seem to be less cautious about where they put it.

The study, Financial Fraud and Fraud Susceptibility in the United States, says many Americans don't know how to spot risky or fraudulent investments.

"For example, many lack an understanding of reasonable returns on investments, leaving them vulnerable to fraudulent pitches promising unrealistic or guaranteed returns," says FINRA.

"In fact, over 4 in 10 respondents found an annual return of 110% for an investment appealing..."

Some victims were attracted by unrealistic schemes promising a daily return of 2%, which, as FINRA points out, would turn $10,000 into $1.4 million in just a year!

More Details

Other findings from the study included:

"It is a more pervasive phenomenon than previous research has suggested," the study adds.

"In the age of the Internet, the costs of entry for fraudulent enterprises are significantly lower and, at the same time, the ability to reach millions of potential victims quickly is significantly higher."

By overlooking the possible pitfalls of many investments, investors, especially the high risk takers, stand to lose substantial amounts of money to fraud.

Latest research suggests fraud costs Americans around $50 billion a year.

What Can You Do?

So what's the solution?

Well, tackling fraud at its roots is obviously a start but it's important to help people recognize the red flags, says FINRA.

That's what we're all about here at Scambusters, of course.

So, for a start, you could check out some of our earlier reports that tackle these issues: Investing Safely and 7 Deadly Sins: Investment Scams Promise Shortcut to Economic Recovery.

We also profiled FINRA in an earlier issue, including a way of testing your susceptibility to scams: Investment Watchdog FINRA Fights Financial Scams.

You can also sharpen your lookout for "red flag" warning signs.

In this latest report, FINRA highlights the most appealing red flags as investments that supposedly:

The bottom line is that any type of investment, even those that look safe and offer only a modest return, should be regarded cautiously.

And any investment that involves large sums of money and/or big returns should only be entered into after taking advice from a trusted professional advisor.

Our experience, based on reports here at Scambusters and echoed by this report, is that you should be especially wary of exceptional deals recommended to you by friends or family.

Oftentimes, they are innocently opening the way for you to join them as victims of an investing scam.

Time to conclude for today -- have a great week!


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