Learn your investment options and get investment tips in this free lesson so you have a better understanding of how investing works.
Avoid investment scams
While the Internet is a great place to conduct investment research, it also provides a fertile ground for investments scams. Online investment scams are similar to the frauds perpetrated over the phone or through the mail. Fraudsters can spread false information using numerous Internet tools, including bulletin boards, online newsletters, spam or junk email, and chat. They can even build great-looking websites.
Investment frauds usually fit one of the following categories:
- The pump-and-dump scam
Messages posted online urge readers to buy a stock quickly or sell before the price goes down. Often, the writers claim they have inside information. Usually, however, they are paid promoters who actually gain by selling their shares after the stock price is pumped up by unsuspecting investors. Once these fraudsters sell their shares and stop hyping the stock, the price typically falls and investors lose their money.
- The pyramid scam
Be wary of messages that read, "Make Big Money From Home Using Your Computer!" It will typically say you can make thousands of dollars in a very short time. This is an electronic version of the classic pyramid scheme in which participants attempt to make money by recruiting others into the program. If an investment opportunity suggests that most of your revenue will come from recruiting, avoid it.
- The risk-free fraud
Watch out for investment offers that promise guaranteed returns or low-risk, high-return results. Remember that no investment is free of risk. If the deal sounds too good to be true, it probably is.
- Off-shore frauds
Be careful when considering any investment opportunity from another country. It is difficult for your country's law-enforcement agencies to investigate and prosecute foreign frauds.
Before you respond to any online or offline investment opportunity, ask questions. Get detailed information about the company and product. Be wary of paying upfront fees or sharing any personal or financial information. To learn more about different kinds of investment scams, take a look at the Federal Trade Commission's information on Investments and Grants.