Are you being scammed?

Interest rates are at historical low’s. As a result, the returns from your interest earning investments such as term deposits will be pretty meagre. Especially so, when compared to just a few years back.

Today a 3-year term deposit will earn you just 3% on average. That is less than half what you would have earned on a similar term deposit just 10 years back. Of further concern is that today the outlook favours further cuts to the interest rates. That will invariably lead to even lower returns from your term deposits.

Looking back in history, it is times like these (low-return investment environments) that the incidence of investment scams tick up in volume and craftiness. The fact is that there is always a risk return trade off.

It’s up to you to be smart about where you invest your hard earned money. Thankfully, there are a number of tell-tale signs to identify such rip-offs. The fact that the medium for propagating scams is broadening from cold calls and emails to social media messaging and ads, the red-flags are still the same.

Here are just a few:

Exclusive or By Invitation only

Someone is trying to sell you an investment product that they purport is open only to a select few. Think again, what makes you special enough to be invited as one of those select few? Investment proposals that are by invitation only should be a red flag right away. It is very likely that they don’t want to advertise it in public in fear of being exposed.

Time Bound

Especially strangers or new acquaintances trying to sell you an investment that needs you to make a decision today or tomorrow. Don’t be pressured into an investment that you are not familiar with. At the least, take the time to discuss it with at least one other confidant. Which leads to the next red flag.

Confidential and private

You are likely being taken for a ride if the individual selling you the product insists that you keep it to yourself. If the success of the product is predicated on you keeping it a secret, it is probably a dud anyway.

Cold Calling

If you receive an email or a phone call from strangers about investment products, be super cautious. It doesn’t matter they direct you to a website. Or, if they identify themselves and the company they represent. It doesn’t matter they talk about how successful other investors have been. Creating sham websites is easy. Names of individuals and businesses can be made-up and success stories of other investors are simply that – stories. It is illegal in New Zealand to sell financial products through cold calling, or if you haven’t requested information about it.

Other less-obvious red flags

There are a number of other red flags, but probably not as obvious as any one or all of the above. Higher returns tend to come from putting your money in higher risk investments. So, be wary of high return investment products that allegedly have very low risk. Typically, the two don’t go hand in hand.

This observation is harder to pick up as a red flag. The reason being that you need to have at least some very basic knowledge about what level of risk supports the promised level of return. Regardless, if someone makes it out that they have caught on to the next big investment trend ask yourself why they are sharing it with you. If it is that good, surely they would pursue it themselves and not share it with you.

Remember, before you invest your money, dig a bit deeper than the ‘returns’ promised and keep the red flags in mind. You can always report it to the authorities if you feel you are have been, or is being, pressured into investing your money.