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Step 1
First of all, try and remember that some things are too good to be true. If an investor tells you that he can guarantee you a huge rate of return, better than anyone else, how is he accomplishing that goal? Is he the luckiest man alive and happens to pick every single stock that doubles it value in the short term? If he never makes even a small mistake in his investments, he may be using insider information, or some illegal action to guarantee this, like a Ponzi scheme. A Ponzi scheme basically means he is using money from new investors to pay off his current investor’s returns. Eventually, however, when people stop investing, he will not have the money required to pay the returns and you are out of luck, and out of a lot of money.
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Step 2
Another way to avoid this is to make sure your investor will show you everything he is using your money to invest in. The person or company should have reports showing what stocks or mutual funds they own, and how they performed. You can go to almost any website out there, like CNN or Yahoo, to verify his reports accurately show how the stock or fund performed. If he refuses to show you this information, he may have something to hide.
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Step 3
The final way to try and avoid this is to do a background check on your investor or company investing your money. Make sure they do not have a historical past of poor performance, or possibly pending law suits. Most of this information is open to the public. It could even be as simple as running a Google search on the person or company’s name. You could also check sites like the Better Business Bureau to make sure they do not show any hiccups in the past. Remember, the money you are investing now will be what you live on in the future, and making sure you can trust who is investing it for you should be a decision you do not take lightly!
Comments
nethopperz said
on 6/24/2009 Wow! Great article. I didn't realize how that worked. I'll be more careful in the future.
jl5080 said
on 6/23/2009 Great advice!