Three steps to protect yourself against financial scams

Posted by TEBI on March 29, 2023

Three steps to protect yourself against financial scams



In the digital world we now inhabit, financial scams have grown in their reach and sophistication, and everyone should be aware of how to protect themselves.


Financial scams have become a persistent reality. They are also becoming more sophisticated, meaning that everyone is at risk.

The internet has unfortunately been a boon for scammers. A recent analysis by Cybersecurity Ventures projected that global cybercrime is growing at 15% per year, and will net an estimated $10.5 trillion by 2025.

That is double the GDP of Japan, which is currently the third largest economy in the world.

A 2021 study by V. Krishna Viraja and Pradnya Purandare from the Symbiosis Centre for Information and Technology found that 81 respondents out of a sample of 110 had been a victim of cybercrime. In other words, nearly three-quarters had been scammed at least once.

This shows that every investor has to be vigilant to protect themselves against this threat. That means knowing how to identify scams and how to protect yourself against them.


Know your scams

The first step is to understand the different ways in which criminals will try to separate you from your money. The most common types of crimes include:

Ponzi schemes: In a Ponzi scheme, the scam artist typically promises high returns with little to no risk, but instead of actually investing your money in anything, they use new investor funds to pay off earlier investors. These scams eventually collapse when there are not enough new investors to pay off the older ones.

Investment fraud: Investment fraud can take many forms, from fake investment opportunities to manipulated stock prices. Be cautious of unsolicited investment offers, especially if they promise quick and high returns with little risk.

Phishing scams: Phishing scams are designed to trick you into giving away sensitive information, such as your passwords or financial information. These scams can come in the form of an email, text message, or even a phone call, and they often impersonate a trusted entity, such as your bank or investment firm.


Trust your gut and do your research

An often repeated, but still valuable, truism is that if any investment opportunity seems too good to be true, it probably is. Trust your instincts and do your due diligence before investing in any opportunity. Here are some things to look out for:

Unsolicited offers: Be cautious of unsolicited investment offers, especially if they promise quick and high returns with little risk. If someone contacts you out of the blue with an investment opportunity, take a step back and do your research before investing. If the opportunity is really so good, why do they need to be so aggressive in trying to sell it?

Pressure to invest quickly: Scammers often try to hurry you into making a decision, for example by saying that the opportunity is only available for a limited time. This should make you wary, and you should always take your time to thoroughly research an investment opportunity.

Lack of transparency: If it is not clear exactly how the investment opportunity works, where it invests, what it invests in, or how it generates a return, be cautious. Make sure you understand what the risks are, and where your money is going. If you can’t get clear answers to these questions, it’s best to avoid the investment altogether.


Ask the technical stuff

Financial scams often try to present themselves in simple terms. The criminals want to make it appear that the opportunity is obvious. But you should always be prepared to dig a bit deeper.

Is there a secondary market?: If you are offered an opportunity to invest in something with promises that it will increase in value over time, ask who will buy it from you when that time comes. Something is only worth what someone else will pay for it. Find out how many people have successfully sold their investments in this offer, because if there are no buyers, then there is no value.

How do you invest?: Never trust anyone who insists that you must make your payment in cryptocurrency, by using a gift card, or through a wire transfer service like Western Union. These allow them to be anonymous, and you should want to know exactly who is on the other end of the transaction.

No regulatory oversight: In the UK, all financial services companies must be authorised by the Financial Conduct Authority (FCA). Before investing with any company, check the FCA register to make sure they are authorised. If a company is not on the register, it could be a scam.



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