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Red flags For Investment Fraud & Common Persuasion Tactics

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Fraud, particularly investment fraud is evolving and you need to keep yourself on toes or else you could it. 

I guess you must be wondering what are the tell-tale signs that you are entering into a fraudulent agreement. Many of us always choose to ignore them even when they are right there in front of you. Have you ever asked yourself, how do financially intelligent people fall prey to investment fraud? Perhaps you have but it is well known that fraudsters are good at reading people. They know exactly what array of persuasion techniques to use to entrap their victim based on the victim’s psychological profile.

Here are some of the red flags to look for:

♣ As the old adage goes “If it sounds too good to be true, it is”. Phantom riches are made up of claims of ‘incredible gains at almost no risk!’ Such claims are the hallmark of extreme risk or outright fraud.

♣ The “Guaranteed returns” claims aren’t. There is no such thing in finance as everything carries a degree of risk which is reflected in the rate of return that is expected. If your money is perfectly safe, then you should expect a low return. Such returns should only be expected from government bonds or t-bills, but even then governments default. So don’t fall for it, when they try to paint colorful images in your head of how your life would be different when you are rich.

♣ Have you heard of the “A Wolf in Sheep Clothing” fable? Beware of fraudsters who seem very likable and come off as trustworthy of the bat. Their credibility can always be faked and you should always check the actual qualifications of the person you are engaging.

♣ Warren Buffet once said “be fearful when others are greedy”, so don’t fall for that “Everyone is buying it.” When that fraudster pitches an investment and claims that everyone is investing in it and that you should too, else be left behind – be wary.

♣Does he/she pressure you to make the decision/send the money RIGHT NOW? They will make all kinds of grandeur gestures trying to build confidence in their bogus scam. They will pass it off as a once-in-a-lifetime offer and it will be gone tomorrow. How many of those have you heard? Resist the urge to say yes. Ignore the pressure to invest quickly. Always take the time to do some due diligence before signing up for anything or sending your hard earned cash.

♣Give and Take scenarios. Fraudsters often try to lure investors through free things like seminars, lunches or whatever.  Out of gratitude or whatever, you will do a big favor for them and invest in their product. There has never been a reason to make a decision on an investment based on a free lunch. So take the time and study, research and investigate every aspect of that investment and the individual selling.

Overall, before making any investments always ask the critical questions. But above all, figure out whether the product is right for you and, understood the terms and conditions of what you are buying.

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 and financial planning: 

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