Whether you’re a first-time investor or you have been doing it for years, you should always be on the lookout for scams. Before you make any commitments, be sure that you know how to spot and avoid a Ponzi scheme. Here are some red flags to look out for.
Low-risk, high reward
Be wary of too good to-be-true investments. Some scammers will give guarantees of high profits with little danger on your part. Every investment is a risk, and typically, the higher the risk, the higher the reward. You will rarely find a high-yield investment without much risk on your part.
Vague model and secretive strategies
Do you understand what the investment model is, or is their explanation filled with fluff? If they are vague when telling you the business model, hesitant to explain their investment strategies, make explanations overly complicated or simply if you can’t get all the information, it may be time to back out.
While consistent returns feel great in the moment, investment gains and losses vary over time. Getting the same, high returns every time may be a bad sign.
Unregistered investments and unlicensed sellers
Any lack of certification should be a red flag. Check to make sure that the firm, individuals and investments you are dealing with are registered and licensed.
If an adviser says you can’t look at written information about the investment or if you find errors or inconsistencies, it’s possible that you are being scammed.
If your payments are inconsistent or if those you are working with try to keep you from cashing out, they could be participating in the Ponzi scheme technique of pushing you into “rollover” investments.
Always make sure that you know what you’re investing in and that you have done your due diligence before handing over your money. Investing in something that sounds a little too good could mean you lose thousands.