The Hucksters

How do we avoid investment scams?

19th-century farm scam. Public Domain. Source: Flikr

Investment scams are everywhere. From Ponzi schemes to obscure bank instruments to fraudulent crypto-operations, today’s financial landscape seems designed to encourage crooks and criminals to try to bilk us out of our savings. What are some of the signs that someone is trying to swindle you?

First, check the pitch. To what are they appealing? Is it fear? Greed? Envy? Scam artists usually play to our lowest impulses. Get-rich-quick schemes appeal to sloth: “Get rich and retire early!” Ponzi schemes offer steady, unsustainable returns, usually in the high double-digits, and appeal to our greed. Obscure investment instruments give us a window into supposedly secret knowledge, calling on pride. For every human foible, there’s a con that goes with it.

Second, ask why this investment opportunity came to you? What is your relationship to the promoter? Is it someone you know to be dependable in other circumstances? This test doesn’t always work. Bernie Madoff knew many of his marks socially, and stayed in touch with them. But it’s far more likely for us to get bilked by someone we don’t know personally. Con artists know how to be charming and to present themselves professionally, so we can’t judge a book by its cover, or even the first few pages. Take some time to see what’s inside.

The third test is to take some time. Good investments, like good investment principles, stick around. Read legal documentation, check references, contact regulatory agencies, and evaluate credentials. Anyone can create a social media profile and put together a slick-looking web site. But it takes a while to establish a track record. Investing isn’t like buying avocados: they’re rarely “available for only a limited time.”

Finally, examine your own investment objectives and limitations. Even a legitimate investment vehicle may be inappropriate if it doesn’t fit your needs. For example, there are lots of things that don’t belong in an IRA. Their tax treatment and liquidity requirements create IRA-specific issues. Similarly, if you need cash from your portfolio, an insurance product or limited partnership is rarely the way to go.

Investment scams and the people they target come in all shapes and sizes. Today’s volatile market can be scary. Con artists know this and they play to our fears. But there are no secrets in money management. There is no secret handshake, exclusive club, secret formula, or easy way to wealth. Peter Lynch puts it this way, “There are two choices: get rich slowly, or get poor quickly.”

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-02-20T09:36:06-04:00February 20th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment