Numerous ponzi schemes and scams have come to light in the past several months. This is a trend that is a result of the crash in the economy. Prior to that, it was easier for these criminals to hide behind the inflated returns that the market provided. Here are some types that will help you avoid these predators:
1. If it sounds too good to be true then it is. The market can’t maintain a return of 10% +. This is not possible. When you see individuals show illustrations that show returns of 10% – 12% this is not realistic. They are allowed by law to show up to 12% but don’t think this is something that can be maintained over a period of time.
2. Avoid investments that show small amounts turning into large amounts within a short period of time. Pyramid schemes are an example of this type of scam. These are different from legitimate multi level marketing firms.
3. Avoid the stock du jour. Many firms will push the “hot stock”. This is a common technique that is used to perpetrate the “pump and dump” technique. The firm or individual will purchase a large number of shares in a very low priced stock. They will then create interest by recommending the stock to clients. This causes the stock to rise and they sell the stock on the way up. The clients are left holding the bag. Avoid the short term strategy. Look at the financials of the company and the long term potential. Work with a firm that advises a buy and hold strategy.
4. Stay away from offshore investments. Regulation S investments are a type of investment that opens itself up to fraud. When investments involve overseas or foreign companies take special care.