4 WAYS TO AVOID FRAUDULENT INVESTMENTS

If you’re like most people, you’d jump at the opportunity to put your money into a sure-fire investment that promises above-market returns. But if a broker or anyone else tries to sell you on such a deal, use caution. You could become the victim of a Ponzi Scheme, , a type of ruse that for nearly 100 years has ripped off investors for tens of billions of dollars.

In a typical investment Ponzi scheme, fraudsters promise incredibly good and/or incredibly reliable returns. And they deliver – for a while. But they're not investing in anything. Instead, they're using money from new investors to pay their obligations to the old.

Though related, investment Ponzi schemes shouldn’t be confused with so-called pyramid schemes involving bogus multi-level marketing business opportunities. In both cases, money from new participants often is used to pay those who joined early on. And eventually both fall apart as the operation grows to unsustainable levels. But the pyramid focuses on recruiting participants to sell a product, while the Ponzi concentrates on attracting new investors.

Here's how to protect yourself:

1. Watch your investments and verify them

If you have a stockbroker or an investment advisor, you should verify your investment holdings independently, and do not rely just on the statements you receive from your advisor. Did you know that Bernie Madoff got away with his massive financial fraud for years because he had fake statements made and sent to his investors?

Check your monthly statements carefully and verify any withdrawals made.

2. Beware of non-stop high investment returns

You could be invested in a Ponzi scheme if your rates of return seem just too good to be true. For example, if you are getting 20% returns regardless of what is going on in the market, something fishy could be going on. There are legitimate financial instruments that offer solid returns with low risk, such as some types of annuities, but these are usually backed up by a well-known company.

Of course, the chances of being taken in a Ponzi scheme are minimal if you only invest with well-known companies and brokerages. You are not assured of a high return, but you know that most likely you are dealing with legitimate investments.

3. Being impatient

Whether you’re investing a little or a lot, you want your investments to perform well and generate the best returns. This means developing a long-term strategy and sticking with it. If you’re constantly shifting your assets around in an effort to chase returns you’re not really giving your investments a chance to show you what they can do. The same is true if you’re only buying investments based on recent performance. Just because something has done well over the last few years doesn’t mean it will continue to do so. Looking at an investment’s complete history will give you a better idea of what you can expect in the future. A big part of being successful as an investor is using your common sense. Knowing where potential missteps may occur can make a big difference in how well your investment strategy pays off.