With the stock market reaching new highs in the past few months, it's not surprising that lots of new investors want in on the action. If you're one of them, here are a few things to keep an ear out for when dealing with new investment opportunities. Identifying one or more of these phrases and tactics could save you from financial fraud.
1. "There's no down market for this investment -- its returns are guaranteed."
All investments are subject to the ups and downs of the market, leaving no guarantee for promised returns. Anyone assuring you that an investment is easy money should cause you to pause and reconsider.
2. "Investors have been seeing double the returns they're getting anywhere else, and you can, too."
Again, the lure of easy money is particularly potent, so most fraudsters will make the opportunity sound remarkably better than the actual results.
3. "You saw what just happened with X on TV; now's a great time to get in on the action."
While timing can be an important factor in trading, if you've seen something in the media, then so have all the market professionals trading relevant stocks. There's no advantage to trading on old information.
4. "I can only offer this investment for a short time, so you need to decide soon."
A deadline will create a sense of panic in you at the thought of losing out on big money. By pressuring you to make a quick decision, the fraudster is distracting you from considering the negative aspects of the deal.
5. "Believe me, with my Ph.D. and track record, I don't sell anything that won't produce big returns."
A fraudster will try to build his or her credibility by throwing around titles, claiming to be with a reputable firm, or the like. But even if the information the person gives you is true, it still does not guarantee honesty.
6. "You can just make the check out to me. It's easier that way."
Writing a check out to a company means that more than one financial institution will be taking a look at the transaction. By writing a check directly to the fraudster, she or he is able to keep a low profile and avoid attention. Never write a check out to an individual for an investment.
7. "I'll make you a deal -- invest today and I'll give you a deal of half off my commission."
Easy money at half the cost? Sounds even better! But the fraudster is only offering you this small favor to entice you to act quickly.
8. "I'm only offering this deal to a handful of smart people."
This statement makes you feel good in two ways: flattery and inclusion. If the person is offering you the deal, then that obviously means that he or she thinks you're smart! And since there aren't a lot of people who will know about this investment, you've hit the jackpot by being included. Buttering you up is an easy way to get you on the fraudster's side, leading to a higher likelihood that you'll hand over your money.
What the fraudster won't tell you:
1. "Of course, you should talk to your financial planner or someone you trust about the deal before investing."
If possible, the fraudster will want to close the deal with you before you get a chance to talk it over with anyone, or even have a minute to rethink your decision. Talking to a financial professional will likely result in your seeing the deal's downsides or outright fraud.
2. "Fraud costs people like you thousands of dollars each year."
This type of statement would remind you of the top two things a fraudster would want to keep out of your mind: fraud and losses. The tone of your conversation with a fraudster will remain light and positive to ensure that you think well of the deal and the fraudster.
For fraudsters, the excitement surrounding the stock market means easy pickings as new investors come to the table. By offering easy money, exclusive deals, small favors, and guaranteed returns, the fraudsters make their investment opportunities sound like no-brainers. But if you're approached with an offer that sounds too good to be true, take some time to consider all of the facts, talk to someone you trust (preferably a professional), and be sure to read all the fine print.
In Fools we trust
If you're new to investing, it can be a daunting task to whittle away at all the information available for each stock. But as every savvy investor knows, and you should too, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love.