Day 9: The 9 Best Ways to Scam-Proof Your Investments

The 9 Best Ways to Scam-Proof Your Investments

The very, very best way to make money cleverly, is to make sure you don’t lose any money stupidly.

All the world’s best investors know that it isn’t just their “hit-rate”, the investments that they got right, that helps them make good money: it’s their “miss-rate” too. If you can reduce the ways in which you lose money, your winners will look much, much better.

And the best way to do that is to avoid scams.

The thing about being scammed is that you will lose all of the money that you put it into it. If you invest in the index, there will be years when the market goes down 10% and the people on the news will talk like it is the end of the world. The next year it will probably go back up again and you will be fine.

If you are scammed? You lose all the money you put in, and it won’t go back up again. You will have lost it all, so there’s nothing to go back up. And that’s why we think you need to avoid all scams, whether they’re legal or not, because they take all your money.

Legal scams? Yes, lots of governments would take issue with the idea that some things they allow are scams, but we don’t care what they think. We want you to keep your money.

#1 Lotteries

Lotteries that pay out only 60% of the total money coming in, and then spend a fortune advertising the small amounts of money they give to charity? It’s only legal because the government allows it – if you tried to do that, they would lock you up! We love people who save money and give some to charity, so if you want to do that, do it, but don’t pretend that a lottery is anything but gambling, which will not help your savings.

#2 Any Legal Gambling

Casinos, fruit machines, online betting websites… All to be avoided as your eventual losses will likely be 100%.

#3 Pay-Day Loans

Which charge up to 100% a month or more? Check how much you have to pay back the company. Add that total up. Sometimes you may end up paying twice or three times more than the actual cost of the item, in the space of just a couple of months. Can’t you wait? Really? Try to wait as long as you can, or try to find an easier way to save.

#4 Credit Card Companies

Credit card companies aren’t as bad as payday loans, but their interest rates can be between 20% and 40% a year, and their bill tells you how much you “have to pay” as a “minimum payment” that fools a lot of people into thinking it’s ok to borrow at that price. Two years of 40% and whatever you bought will have cost you double. Don’t do it.

And that’s just the legal stuff.

Other things like ponzi or pyramid schemes try their hardest to look like proper investments, but they will be the riskiest things you ever do. While it’s nearly always possible for you to lose money on a normal investment, a scam investment will try to make it look like you can’t lose money, and then you will lose everything!

Here are some things to look out for:

#1 If it looks too good to be true, you should assume it is a lie

High returns usually come with higher risks. That’s fine when you want to take those risks, but someone who promises high returns without high risks is probably hiding something. They may be hiding a risk that they don’t want you to know about, or maybe just the risk that they may steal your money. They may not know the risks themselves. Avoid them.

#2 Similarly, the word “guaranteed” should make you scared

Scammers use the word to make novice investors feel more comfortable, but proper investments don’t carry a guarantee, they carry risks, which is how they offer returns. Avoid offers of guaranteed returns.  

#3 Scammers don’t like you asking questions, so ask as many as you can

Ask anything you want to ask. Ask for their license to sell to you, or for their industry accreditation. Importantly, ask why they’re telling you about such a good deal. Did you call them or did they call you? If they called you, ask them why. If you were a broker, you would give your best deals to your biggest clients, where you will make the most money and win their loyalty. So why is someone you don’t know offering you something so good?  

#4 You can avoid “Ponzi” and “pyramid” schemes by working out where the return is coming from

Investments in houses make money from rental income and because the value of property goes up: the same is true for shares in companies and bonds. If you give money to someone, they have to put it into an investment that makes more money than you gave them for them to give you more money back.

Ponzi schemes rely purely on more people giving them money, so they can give more back to the original investors: the pyramid needs to keep growing, because no real returns are being made on the money.

If you can’t see where the investments are being made and the returns are coming from, assume it’s a pyramid, and avoid it, because you will probably be at the bottom of the pyramid and get crushed when it collapses!

#5 Don’t feel rushed, or guilty, or embarassed

This is your money they want, so you should feel patient, calm, and confident. You are the boss. If they give you a gift, it’s probably a trick to make you feel guilty; either refuse to take the gift if it will make you feel guilty, or take it and forget about it. You don’t have to do anything with your money you don’t want to.

And that’s the key. Take your time. Only do what makes you feel comfortable, build your investments slowly and steadily and you should manage to avoid lots of the scams that will result in you losing money.