How Millennials can Protect their Finances — Part II
Avoiding the Scams
A Little About your Author: Fraud Stamp is a small team of experts in personal finance that offers a range of free resources including online courses, books and reports to educate investors in the field of finance and investing. You can visit our website at www.fraudstamp.com or follow us on Twitter and Instagram @FraudStamp. Enroll on our latest free short online course, ‘Giving the Scammer a Kick in the Groin’.
The Three Steps to Avoid most Scams
One thing to remember about many of these scams is that it is all a numbers game. The scammer is calling millions of people whether they are students or not. Some will fit his criteria if he calls a sufficient number of people. And the ones that do meet his criteria will take his threats seriously and follow the scammers instructions until they have been parted with their money. The lesson to learn here is; you were not personally selected, you are one of millions, it just so happened that you have a student loan, owe tax, have a car loan or something else they are targeting. It is coincidental. Always end the call immediately.
The most simple rule is never to send money or provide personal information over the phone or via email. In reality if the IRS wanted their overdue tax, they would write to you. The same applies to the company you owe money too. They all write. So never respond with money or information. Get yourself into that frame of mind. If you are convinced the demand is real then ask the ‘person’ three questions:
- What is the name and address and phone number of the company you’re calling from?
- What is the name and address of the person you’re trying to reach?
- What are the last four digits of your Social Security number?
One other thing you can do is stay up to date with latest scams that are trending, you can find these on Twitter in real time. It is a great platform to see what is going on live. Type in ‘latest scam’ or something relevant to your question and it will quickly reveal whether others also have the same complaint.
The above scams do not discriminate. However they are more successful with millennials purely because you are more trusting and are more used to providing your personal information online.
Frank Abignale, the famous scammer played by DiCaprio in Catch Me If You Can, once commented about stealing identities:
‘If you tell me on Facebook where you were born and your date of birth, that’s 98 percent of me stealing your identity.’
Also being too trusting, millennials are more likely to believe that a pop up comes from Microsoft warning that there is suspected malware on the device and to call 0800 number to resolve the issue. Of course once you call you might be instructed to hand over remote access to your computer to fix the non existent problem. That is when the problems start…
Millennials are being targeted with a two pronged attack. Firstly you are being targeted by scammers who prey on your naivety to volunteer your personal information. Secondly you are being targeted by scammers who are taking advantage of your eagerness to invest and your optimism as regards the potential returns you think you can earn from your money.
Investment scams are generally targeted via Facebook, Instagram, Twitter, YouTube and Google. They take many forms, let’s touch on the most popular ones.
Cryptocurrency scams — Sal discussed these above. They offer impossible returns in a short period of time. Some are a quick smash and grab which is what Sal was talking about. They induce invest with outlandish promises and then run as soon as the first or second return to the investor is due. Others play a long term game. The biggest was a scam called OneCoin where the founders persuaded investors to buy packages of worthless cryptocurrencies which they convinced investors would be worth millions of dollars in the near future as the price of the currency soared in value — in the same way as Bitcoin had was the pitch. Investors lost nearly $15bn to this scam!
Binary options and forex scams are also very popular with millennials. Many of these run on attractive looking apps. However the scammer manipulates the odds or the terms and conditions and prevents the investor from withdrawing his cash.
Selling trading signals is another scam where fraudsters offer to sell you information that will make you money in the markets. The fraudsters’ information is freely available online and most of it is bogus or publicly available.
Ponzi schemes — these are where the scammer offers you a high monthly return on your money if you invest in his latest project. It could be a farm in Africa, a plantation in Brazil, a shipping container, a car parking space, a land development in Morocco or a solar power plant in the Sahara.
Passive income schemes — I blame myself for the constant barrage of emails and YouTube adverts I receive from Oliver trying to persuade me to enroll on his passive income course. He is offering to teach me how to set up a business on Amazon and make thousands of dollars a month selling crap. Many people enroll on Oliver’s courses. But they forget a few important things. Firstly, if it was this easy to make money everyone would be doing it, and if everyone was doing it no one would make money. Secondly the only person who makes money is Oliver. You will lose not only the money you invested in his course but also the worthless stock of Chinese crap you ordered and now can’t sell. There are many sharks like Oliver around. If you have a desire to set up a side gig, research it yourself, read books about it and go out and do it. You don’t need Oliver to show you how.
Dangers of Influencers
Influencers are the menace behind many of these investment scams. They tell their followers how much money they are making from the foreign exchange or binary option app they signed up to. The only money the influencers are actually making is from the likes of Sal and his buddy Alex who pay the corrupt influencer every time he convinces or persuades one of his followers to sign up to their app. Just remember when an influencer shows you his red Ferrari and Hublot watch that is all a game to get you to invest. He doesn’t care whether you lose your money, he just wants his commission, that is what paid for the watch!
Identifying Scam Investment Opportunities
How do you identify whether the many opportunities circulating social media are scams? There are a few words or phrases that scammers use that are a dead giveaway. Here is the magic list… If you hear any of these in the pitch you know what to do…
- The opportunity of a lifetime
- This baby’s gonna move
- You need to hurry
- It’s a sure thing
- Our proprietary computer model
- Our algorithm
- The smart money is buying it
- It’s a no brainer
- You can’t afford not to own it
- We can beat the market
- You should focus on performance not fees
- Can’t lose
- The upside is huge
- There’s no downside
- I’m putting my mother in it
- Trust me
- Monthly returns
- No one knows how to do this
Some General Guidance on Investing
We all know the phrase if it looks too good to be true it usually is. We know that is an irritating phrase but it is so relevant here. Just think of it this way, one of the best investors who ever lived is Warren Buffett. His average annual return is 20 percent. Now think to yourself, Sal’s friend Alex who offers you the chance to make 2 percent a month from his secret foreign exchange algorithm — is it likely that Alex is going to be able to perform ahead of someone like Warren Buffett? That unbelievable performance would make Alex one of the top investors in the world, ever. Is it likely that if Alex was one of the best investors in the world he would be advertising on Google or posting his videos on YouTube? When was the last time you saw Warren Buffett advertising on Facebook?
The world is full of people trying to get their hands on your money. Your best bet is to avoid the get rich quick schemes. Avoid the unregulated firms. Always do your own research. Never be rushed into a decision. Always check online and see if the person or company offering you this opportunity of a lifetime has scammed others, odds are he has. By all means invest through Robinhood, the stock broking app, but only invest what you can afford to lose. There are many many horror stories of people investing all their savings in risky stocks or even more risky schemes run by the likes of Sal and guess what? They lose everything. And don’t say this couldn’t happen to you because he does and it will.
These are our main rules on investing and thus avoiding investment scams we will leave you with:
- The stock markets long term average return is around 9 percent including dividends. Any investment that offers above this rate is likely to be a scam.
- Your pension should never be invested in risky products. It should also not be invested in one asset unless it is property that you own and is not part of some scheme run by Sal.
- If you are investing in the stock market limit this to only 5 percent of your total portfolio excluding your house. Remember you are no Warren Buffett, you are an amateur, you may get lucky but long term it won’t last.
- Only deal with regulated companies, regulated in your country of residence, not in Belize, Estonia, Malta or Cyprus.
- Never respond to investment opportunities online.
No Financial Advice
This article does not constitute financial advice in any way. This article should be treated as supplementary information to add to your existing knowledge base.