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March Madness: Avoid Investment Schemes

free-basketball-clip-artThis is the time of year when basketball fans put a lot of energy into their brackets and speculating about who will win the NCAA tournament. However, there is another kind of March Madness in the air that involves speculation…the kind that has people investing in improbable schemes and stocks that may not yield results.

Many investment schemes promise that you will get great returns with very little effort. Myretirementpaycheck.org advises that you, “Beware promises of high or unusually steady rates of return. If a money manager can’t easily explain his or her investment process, that’s a red flag.”

Other ways to avoid investment schemes:

Do your research before investing with a firm or an individual. This includes people who are referrals from friends as well as strangers. The article notes one common type of fraud is affinity fraud: “…investment scams that prey upon members of certain groups, such as religious or ethnic communities, the elderly, or professional groups.” The familiarity people tend to feel with someone who is part of or connected to a group they belong to allows them to trust in ways they may not trust a complete stranger.

Invest in known quantities. The article suggests that you, “Choose everyday investments that can be bought and sold through well-known brokerage firms or mutual fund companies.” Think twice if someone comes to you with a “unique” or “exclusive” investment opportunity that few people know about. While there are some things that are not common knowledge, you should be able to find some information on a potential investment.

Don’t invest with anyone who says they must control all of your money. The cliché about not putting all your eggs in one basket (lest they break) still rings true. Investing comes with risks so letting one person or group control all of your money means that if the investment doesn’t turn out well, you stand to take a big financial hit.