What You Can Do to Avoid Investment Fraud

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So what can you do to avoid investment fraud? Ignorance about investing is not bliss…it is very expensive.

First before anything else…

Ask questions & Conduct Independent Research

Those who wish to swindle you off of your hard earned cash are counting on you not to investigate before you invest. As such, the only way to fend them off is by doing your own homework and conduct some due diligence. It is not enough to ask them for more information or references.Ensure you take the time to do your own independent research.

Some of the questions you need can ask while doing your own independent research are:

a. Know exactly how you can lose money if you make that investment –  understand the ways in which you can lose money, is the best way to understand an investment.

Always keep Warren Buffets Rules in Mind:

Rule No. 1  Never lose money. Rule No. 2: Never forget rule No. 1.

b. Know the risks involved – identifying the risk profile is one of the best ways to manage risk. For example in stocks – find out the company specific, industry-specific, investment style specific and the market risks involved.

For instance, investing in Bonds – what are the inherent risks involved in investing in bonds – some factors may include interest rates may increase as when interest rates rise the price of the bond declines.

c. Know the financial adviser or salesperson – fraudulent investments are fraudulent because they are delivered with false representation.  To circumvent this, spend time learning more about the person selling the investment products before committing to any investment.

Always find out:

i. What firm does the financial advisor represent?

ii.  Is the firm licensed to sell securities?

iii. Has the financial advisor or the firm had any problems with regulators before?

iv. Has the financial advisor or the firm had any problems with investors in the past?

d. Know what to look for – Make yourself knowledgeable about the different types of fraud and the red flags that may signal investment fraud. Knowledge gives you the power to stop. It prevents you from becoming a victim of investment fraud.

Happy Investing!


I hope this resource helps you. Please let us know what you think in the comments section below. If this article has been of great help to you please share it.

Meanwhile, You can click on the following links to read more on fraud: 

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.

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