Make your money work harder – pitfalls to avoid

If there’s one rule of thumb for investors to bear in mind, it’s that “if it looks too good to be true, it probably is”.

Be aware

The expression “a fool and his money are easily parted” is not as relevant today as it once was. These days, scams and fake investment schemes can be very sophisticated and difficult to tell apart from the real deal. That said, there are some key clues to look for to avoid losing your money to a scam.

Indicators of a scam

Take a look at the classic warning signs to know if you could be dealing with a scam.

Unrealistic returns

We all want to earn high returns but the fact is that most of us will “get rich slow” by spending less than we earn and steadily growing investments across the main asset classes of cash, fixed interest, property and shares.

If you come across promises of returns that are extremely high – especially when coupled with declarations of low or no risk – you need to question how it is the returns can be so strong. Always remember the fundamental rule that risk equals return. The higher the return, the greater the risk you could lose part or all of your money.

Generous tax breaks

No one especially enjoys paying tax but a good investment should stand on its own merits, and any tax concessions are the icing on the cake – not the main drawcard.

Quality shares and property, managed investments investing in these assets, and your superannuation may offer the potential for perfectly legitimate tax concessions. But any so-called investment that focuses on tax savings should be questioned.

High pressure selling tactics

Claims of “a limited time offer”, “an exclusive opportunity” or any other tactic designed to get you to make a quick decision should send the alarm bells ringing. High quality assets do not need to rely on high pressure sales pitches to attract investors.

Protect your money with some golden rules

Always treat cold call offers of an investment or invitations to invest out of the blue with a healthy dose of scepticism. Do not hand out details of your financial accounts or other personal identification details to anyone you don’t completely trust. This especially applies to emails you receive unexpectedly.

If you feel you have been scammed, contact the police and your financial institutions immediately as the security of your accounts may have been compromised.

Stay up to date with scams

Scammers and con artists operate in the physical world and online too. Stay up to date with the latest financial scams by checking out the government’s Scamwatch website.

Source: BT

Rayner Planners