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How to Avoid Investment Scams

Aug 17, 2007
Investment scams are so commonplace that they aren't given nearly enough attention. Most people believe that scams will be so obvious and apparent that they will realize it when they see one, avoid it, and not be a victim. However, scam artists know that they have started to design more devious methods of capturing a reader's attention and, hopefully, their money as well. 

While the Internet is an amazing tool for communication, it is also a large playing field for anonymous scam artists. Many informative newsletters and online message boards are designed to look like investors are the ones writing and recommending various strategies, but in actuality, these can be cleverly designed scams. Without even realizing it, an investor can follow the recommendations and lose their precious funds. 

Many of these newsletters and message boards employ people that will write favorable messages about certain stocks. The key is to discern between what sounds good and what really is valuable. When emotions and strong language is used in conjunction with a recommendation, it may be because it is a scam that is trying to lure someone into investing in that particular stock. Of course, not all tips are meant to do that and here are some ways to separate the truth from the fiction.

When an investor is looking into the purchase of a stock, the best way to begin is to look at the company's financial statements to see how they are doing fiscally. If the income and debts seem in order, the next step for the investor is to call the company to find out if the claims in the newsletter or spam email are correct. Many times, false claims are given in order to lure an investor into a stock purchase. Find out if the claims are true.

An investor can also stop to check to see if the vendors and other businesses promoted to work with the individual company actually do work with the place that wants the investor to buy stocks in. Better said, find out if all of the facts in the email or newsletter are accurate. Putting larger companies' names in the stock information can look impressive, but the investor needs to be sure that it's accurate. 

Asking questions is vital for the security of the money that is being spent on the stocks. Taking the time to investigate to see if money is actually being made for the investors is all that needs to be done in order to differentiate between fraud and friend. 

Most public companies need to register with the SEC and file reports annually as to their growth and progress. These reports have been audited for their accuracy so that stockholders and investors have a truthful picture of the possible growth or decline of that company. This gives an investor assurance that the company has been verified-and an investor can easily check with the SEC to get this information. 

The states securities regulators are another place that can help an investor to determine whether or not a stock company is legitimate and able to sell the stocks that they claim to sell. The NASD can also help in this verification. 

The overall message of investor safety is that they can never ask too many questions. Checking in with the growth of the company that someone is thinking of buying stock in is only fair given the money that will be used in the transaction. The investor wants to be sure that their money is working for them.
About the Author
Joel Arberman is the Managing Member of Stock Aware, LLC. We publish a free investment research and analysis newsletter. Learn more at
www.StockAware.com
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