Avoid Investment Scams by Watching for These Eight Red Flags

Nearly 90,000 Americans were impacted by investment scams last year, almost double the previous year. While most of us would like to believe we would never fall for a scam, every day fraudsters get more highly sophisticated, and no one is entirely immune.

Victims of investment scams lost an estimated $1.58 billion. That's an increase of 246% from 2020. To say that these scams are becoming more prevalent would be an understatement.

To reduce the likelihood of losing money to online thieves, look out for warning signs like these eight red flags commonly associated with investment scams.

1. It Came Out of the Blue

Unsolicited financial advice is rarely sound. Any opportunity that presents itself to you “out of the blue” needs to be treated with extreme caution, even if the recommendation comes from a friend.

In fact, financial information that appears to come from a friend electronically is a sign that a friend may have been hacked, especially if they wouldn't usually share an investment opportunity with you.

The best financial advice is typically advice you seek out yourself from a professional. Even if you are sure an opportunity that's presented to you is a sound one, the first step should be to run it past your financial advisor or someone else you trust.

There's a reason scammers tend to target more vulnerable and isolated people. It's easier to spot a scam when you discuss it with others.

2. You Discovered It on Social Media

No, you didn't. It discovered you. The Federal Trade Commission (FTC) reports that 54% of investment fraud losses originate on social media channels and describes social media as a gold mine for scammers.

Over a quarter of the people who reported losing money to fraud last year said the scam started on social media with either an ad, a post, or a private message.

Remember that social media makes targeted advertising very simple, so if ads crop up suggesting investments you have been considering recently, that's not “a sign” it's right for you. That's simply social media companies selling your data to advertisers.

Instagram and Facebook are the most common places to stumble across a scam, but it also happens on messaging apps such as WhatsApp, Telegram, and Snapchat, as well as other networking and sharing sites, from LinkedIn to TikTok.

3. It Sounds Too Good to be True

Scammers always over-promise. Typical red flags include the promise of very fast or consistently high returns, especially if they are “guaranteed.” Buzzwords to watch out for are “risk-free,” “trade secret,” and anything along the lines of “95% of investors don't know this.”

Investment scams take many forms, and new ones emerge all the time, but they usually come with a pretty hard sell and a legitimate-sounding reason why this investment is different from and better than all the others. If something sounds too good to be true, it is.

4. One or Two Small Details Are Off

Investment scams often involve cloning the websites of legitimate brokers, exchanges, and other financial institutions. The site may look the same as the legitimate site and have the official brand logo and the same words and images, but the URL will be slightly different.

Scammers will even quote the license number of the legitimate firm, so if you look the firm up via a regulating body such as Financial Industry Regulatory Authority (FINRA), it will appear to be listed and regulated.

Maybe at this point you will spot those one or two details that are wrong. The phone number or email address listed may differ from the one on the regulator's site. By now, you are on to the scammer, but it's possible they will remain cool and simply say that the details on the regulator's site need to be updated.

5. It Involves Cryptocurrency

Investing in cryptocurrency may be a legitimate, albeit risky, strategy if it suits your knowledge base and risk appetite. However, if you've never been interested in cryptocurrency and are suddenly asked to buy it to make a specific investment or transfer, that's a huge red flag.

Cryptocurrency offers anonymity, and crypto transactions are hard (though not impossible) to trace. There have been a ton of crypto scams recently, especially Initial Coin Offering (ICO) scams and exit scams, where a new cryptocurrency is offered, investors are found, but the coin itself doesn't end up ever being successfully launched, and the developers or promoters disappear with the investors' money.

6. It Involves Transfers Using Hard-to-Trace Methods

Bank transfers leave a trail. Credit card payments can be reversed. So if someone is insisting you can only access their amazing opportunity using a particular transfer method such as online electronic wallet transfers, third-party payment methods, crypto, or pre-paid cards, it could be because they're harder to trace.

7. You're Being Pressured

Legitimate financial advisors won't generally apply time pressure on you to make an investment. Scammers almost always have a time-sensitive opportunity that you have to invest in by a certain date in order to profit.

It's not just time pressure you have to watch out for. Scammers will pressure you into investing more than you can afford and even more later. They'll also pressure you into investing in a certain way, which, as already mentioned, may involve hard-to-trace transfers and not telling others about it because they can only share it with a limited number of people.

8. Something Just Feels Off

Some scammers are excellent at what they do. Many aren't. They tend to leave clues that they are less than legit.

If something about an investment opportunity feels wrong, trust your gut. Step back and consider hiring a reputable financial advisor near you who can offer professional advice and guidance to protect your savings from unscrupulous fraudsters.

Have You Been the Victim of an Investment Scam?

If you fear you've been the victim of an investment scam or a shady character is targeting you, the Securities and Exchange Commission (SEC) provides useful insights on what to do and who you can contact by visiting this page on the SEC website.

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This article was produced by Wealthtender and syndicated by Wealth of Geeks.


I’m a freelance writer specializing in online business, personal finance, travel and lifestyle. I also work as a content creator for hire, helping brands and businesses tell their stories, grow their audiences, and reach their ideal customers. I’ve lived, worked and studied in six countries, across three continents. Stop by my blog TheSavvySolopreneur.net to learn how to run your own (very) small business on your own terms. You can also connect with me at my website KarenBanes.com or follow me on Medium.com.