The other day I gave a talk at Troy Library, and the topic was how to protect yourself from scams. I thought I would share with you some of the highlights of the talk. After all, scams affect each and every one of us. It doesn’t matter if you’re rich or poor, old or young, the scam artists are after us and it’s important for us to protect ourselves. I wish there was something that we could do that would eliminate the risk of being scammed; unfortunately, there isn’t anything. Rather, the goal is to put up enough road blocks to make it difficult for the scam artist, and to be able to limit the damage if we are taken advantage of.
The first thing I reminded the audience about was identity theft. Identity theft is real and can have severe consequences if you are a victim. Therefore, everyone needs to take some precautions. In that regard, every one of us, in order to protect ourselves, needs to learn to say no. When someone asks you for your Social Security Number, the automatic answer should be no. Just because someone asks for your Social Security Number doesn’t mean you have to provide it to them. When someone asks me for my number, I say no and ask why they need it. In the great majority of situations, they can’t provide me an answer other than it’s on the form. Yes, there are certain times we have no choice but to provide our Social Security Number such as to employers, and tax related situations. That being said, in the great majority of situations we don’t have to provide it and we shouldn’t. Remember, with your Social Security Number, scam artists can do all sorts of things such as file tax returns on your behalf and open charge cards. The bottom line: we all just have to learn to say no.
From an investment standpoint there are two types of scams. The first is where it’s just and out-and-out theft. The other type of scam, which can be just as costly to you, is where the product is legitimate and being sold by a well-known company, however, the product is not suitable for you. To prevent these scams you need to set some rules for yourself before you invest money. The following is a list of rules I live by that I use to protect myself and my clients.
The first rule is I don’t invest in anything that I can’t check out independently. If I can’t check out an investment independently, I walk away from it. I don’t believe what a salesperson is telling me; I only believe what I can check out independently.
My next rule is I don’t invest in anything that doesn’t have a track record. So many scams are because people think they’re getting in on the ground for the newest, greatest technology. As far as I’m concerned, that is more gambling that investing. Therefore, before I’ll invest in anything, I want to independently look at the investment’s track record, and I generally look at three, five and 10 year records.
I don’t invest in anything that I don’t understand. My philosophy is that if you don’t understand an investment, you’re more apt to let fear and greed dictate your investment decisions, and I can assure you, if you invest based upon those two emotions you will not be a successful investor. We can all admit that we don’t know everything; so, if we would stay with investments that we understand, we would be more apt to be successful. I venture to say the great majority of people who are purchasing annuities today have no clue what the contract says. As far as I’m concerned, when it comes to investments, you must know how you can make money, how you can lose money, and how to get your money out if and when you choose to.
One common element that you see in products that are aggressively sold is high fees and high commissions. As far as I’m concerned, I don’t invest in anything unless I know what it costs me to buy, what it costs me to sell and what it will cost me to hold. You would be surprised how much money can end up in your pocket if you focus on fees. High fees equal low returns. In addition, when you see some of the commissions paid on certain investment products you’ll better understand the reason for the aggressive sales tactics.
My last rule is that we all must be reasonable when it comes to investing. I wish I could tell you about a product that will pay you 12 percent without risk – it doesn’t exist. The bottom line: when it comes to investing we all have to be reasonable. We open ourselves up for scams when we let greed dictate our investment decisions. The bottom line: you and I can protect ourselves by being sensible.
There’s nothing that you can do that will 100 percent protect yourself; however, by being informed, learning to say no and by taking the time to do some independent research, you are doing what you need to put up speedbumps to make it difficult for anyone to take advantage of you.
Good luck!
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.