10 Ways To Spot A Potential Investment Scam

If you are new to the world of stocks, it can be quite overwhelming trying to figure out where exactly you should put your hard-earned money. You’ve surely seen those advertisements claiming to promise “100% guaranteed return” or something equally ridiculous. If you’ve wondered if those are genuine claims, you should already know they’re not!

Many such ads can be misleading, or even downright fraudulent, so you need to be careful. But when even the most experienced investors can slip up and get caught in a scam, how can you, an investor with beginner or intermediate-level knowledge about the game, protect yourself from con artists and fraudsters?

The good news is that there are several signs to look for that signal that an investment scheme isn’t exactly what it is made out to be. Here are 10 signs of a potential investment scam that you should be looking out for.

If it Seems to Like it’s Too Good to Be True…

…It probably isn’t. This isn’t just sound advice when it comes to investing in the stock market, but generally in life as well! Yes, there are some outliers who seem to knock it out of the park, but even they won’t be able to get such high returns, consistently, in the long run. If someone is telling you that you can get particularly high returns at a steady pace, what we’re telling you to do is walk (no, run) away!

They are Offering a “Guarantee”

There are guarantees in the stock market and anyone who promises you one is trying to hoodwink you. There is no special circumstance where a stock market return can be guaranteed or predicted, ever. The only times when you can be guaranteed a return is if it is concerning fixed-income investments like bonds or CDs (Certificate of Deposits).

The Investment Seem Unique or Complicated

Some fraudsters will try to scam you by telling you that they have a unique opportunity that is “exclusively for you”, something that is not offered to “regular people”. They may use fancy language like “private placements” or “prime lending certificates”, which sound impressive but actually don’t mean anything. Some may even claim they have mastered a special technique with futures or forex.

New Technology or Business Models

Another way that fraudsters try to get you is by setting up seemingly legit companies that are “innovating the way you do business” or offer “world-changing technology”. A company claims that it has a patent for a product or technology that will change the way the world works and promise you the moon and the stars. It tells you that you have the opportunity to “get in cheap” before the big investors swoop in. Unfortunately, most of these companies may sound like the real deal, but the technology they’re touting may not even exist or some other issues may be blocking them from actually making anything worthwhile with it.

You are Brought in as Referral

This is one of the oldest scams in the book, and it is unfortunate that people are still falling prey to it. Scammers rely on social circles of the initial investors so they may bring in more and more people. You may be convinced by someone because they actually got paid some money, and you may even get paid yourself initially to keep you motivated. But as soon as the scammer gets what they want, you will be left empty-handed. Multi-level marketing scams are one of the most common of such scams.


Forcing you to make decisions quickly is one of the ways scammers trick you into getting caught in their net. Their strategy is to give you less time to consider whether the offer is legit or seek advice from trusted sources. They push “limited time offers” that require you to make an instant decision and access your FOMO by telling you the offer expires soon.

They Don’t Use Independent Third-Party Accounts

There is no legitimate investment plan where your money is pooled into a common account along with countless others. Your money should always be held in an independent account and it should be held by someone other than the scammer. You should always be able to check on it and receive regular updates on it as well. The Madoff Ponzi scheme is a good example of these types of scammers. Read up on it to get an idea of what you should be avoiding!

Conspiracy Theories

Scammers try to access your fears to trick you into trusting them. One such way to do that is by spouting seemingly legit conspiracy theories. Things like how the government is actively trying to “prevent” you from getting rich or making certain types of investments. They pretend to care about you and gain your trust by “offering” these investment opportunities that the government has hidden from you.

They Aren’t Registered

This is one of the absolute bare minimums for any organization or individual that is offering investment opportunities, so make sure to check that they have been registered with the SEC or another government agency. Make sure to personally verify their claims as well, because anyone can claim that they are when they are not. While this isn’t a 100% guarantee that you’re not getting roped in by a fraudster, at least their registration gives you some sort of recourse if they do turn out to be illegitimate.

Really Bad Investment Advice

Even if you are a beginner in the world of investment, you should have some basic knowledge about money management, so if someone gives you advice that seemingly goes against common sense, you should wise up quickly.

Some scammers try to convince you to put “all your assets” into their investment or ask you to take out a loan or cash in your 401(k) to have enough money to invest in their offer. First of all, keep in mind that any investment that you make must come out of your disposable income after all your needs are met, and definitely not with money you do not have (i.e. do not take out loans for investment!). Your 401(k) is an investment of sorts, and should never be accessed unless it is an emergency either. Secondly, never put “all your eggs in one basket”, so to speak – that is just too risky!