Would you know how to spot a fraudulent investment if you were offered one? Below are some red flags to watch out for when investing. You should be very cautious if you encounter any of these situations. Never invest your money in an investment that you do not fully understand and feel comfortable with. Remember if it sounds too good to be true it probably is!
GUARANTEED AND RISK FREE INVESTMENTS
There is no such thing as a low-risk high-return investment. This is because risk and return are directly related – the higher the return the higher the risk – this is always the case when it comes to investing. Deposit instruments such as a GIC from a chartered bank are low risk investments and typically provide for returns that range from less than 1% to just over 2% per year depending on the term of the investment. If you are offered an investment with a significantly higher rate of return and are told that it is risk free or guaranteed, you should consider this a serious red flag.
HIGH PRESSURE SALES TACTICS
Do not invest money if you feel that you are being pressured to invest. Fraudsters often use high-pressure sales tactics in order to coerce individuals into investing in their fraudulent products. One technique used to pressure individuals involves limiting the time that an investment is available for purchase. This creates pressure on a person to purchase and limits their ability to think things through and make a considered decision. A time-limited investment should be considered a red flag, especially if the time limit is very short. For example, if you are told that an opportunity to invest is only available for a few hours it is highly likely to be fraudulent.
SOLICITATIONS BY PHONE AND EMAIL
Receiving a telephone call or email from a person attempting to sell you an investment that you do not know is a red flag. When making an investment you should only deal with an advisor that you are familiar with, or a representative from a dealer where you already have an account or business relationship. Always check the registration of an individual before you open an account and invest. You can check whether a person is properly registered to trade in securities such as mutual funds, stocks, and bonds at www.aretheyregistered.ca. A person whose name does not appear in the search cannot trade or advise on securities, and you should not deal with such a person for these purposes.