Friday, 8 November 2013

How to avoid getting caught in a financial scam: Ask yourself "why me?"

People get sucked in by scams all the time.  From thinking that they are going to make it rich by funnelling cash through their bank account for someone trapped in the third world to allowing someone who says they are from Microsoft to take control of their computer and steal their identity.  Some of these are so obvious that we wonder "How could they possibly fall for that?"...however people seem to fall for scams and dodgy investments all the time.

This will be a rather short post which will encourage you to ask one of the most important questions when trying to work out whether something is legitimate or not.  It is will deal with financial related scams and dodgy investments (but will not save you from the tech scams like the Microsoft one mentioned above).

Always ask..."why me" before investing in a 'great deal'

Financial scams are almost always pitched as a once in a lifetime opportunity that is being offered to you so that you can make a lot of money in a short time.  Always take a step back and ask yourself 'if this is such a great deal why am I being offered it?'

Very few people (and certainly not a stranger on the street, or someone that is part of a social club or church congregation) will give you something for free. Even if you know what they are getting out of need to ask yourself why you are being offered the deal of a lifetime or the great deal that not everyone has access to.

I have written about this before but if something seems to be too good to be true then it usually is.  But even if you get sucked in at this point and think that it may actually be a good deal then think about this...why is it being offered to you...Mr or Ms Ordinary Investor.  I work in the investment world and trust me when I say that these sort of 'super return' investments do not exist in our world...why?  Because we know how the game is played and fraudsters are not going to make money off us.

If something is guaranteed to make a huge or abnormal amount of money, especially in the short term then ask yourself why they are selling it to you and not mortgaging their house to invest in whatever they are trying to sell you.

Ignore them when they say that they are investing alongside you...and don't ask them why you've been chosen

The thing about investment scams and confidence scams
more generally is that the fraudsters have an answer for everything.  They will say that they have made heaps of money out of these investments and are involved in it themselves.  You need to question why they are then spending their time selling this same stuff to you if it is so great.  Wouldn't they just be concentrating on that and making their money there instead?

Also keep the 'why me' question to yourself when they are trying to sell you something.  There will be all sorts of excuses about 'needing to raise just a little bit more capital' or some other convincing story.  Ask yourself and then walk away when you can't work it out.  Also...with investments you need to be cynical - look for reasons why it wont work not for reasons why it may work out.

These sorts of 'investments' are more common than you may imagine

If you're wondering why I suddenly got a bee in my bonnet about this particular topic it's because recently I had family members that almost got sucked into a sophisticated version of one of these sorts of scams.  These are smart people who are generally good with money and who should know better.  They had someone come to their house with a 'property investment opportunity'.

It was for cheap, super under-valued apartments on the Gold Coast of Australia that a developer was letting go 'for peanuts' because 'they needed the cash'.  They had great photos, the salesman told them he was invested in it themselves and they showed me the 'data' that he had given them and it all looked great.  However if they had asked 'why me' they'd probably did they of all the people in Australia, happen to get chosen....they were not special or sophisticated investors with contacts to be able to find things before others.

Had they asked this question then they may have had the epiphany that perhaps this investment was being offered to everyone...and maybe it wasn't quite as good as it seemed.  [Note: the way that these investments usually work is that you get sold a property at 30 - 40% above the actual market price and then sit on a dud investment for years (and that is for the more sophisticated ones...occasionally the property isn't even there)].

The story above didn't end too badly...something didn't feel quite right to them and they ended up chatting to me and only losing a small deposit amount.  But these weren't gullible people or unintelligent.  This can and does happen to ordinary people.

So beware of anything that seems too good to be true and if it does seem 'right' then ask yourself why YOU of all people are being offered this great deal.

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