The typical victim of an investment scam is often portrayed as poorly educated, elderly, financially naive and lonely. But recent research from True Link Financial suggests just the opposite. If you consider yourself thrifty, financially sophisticated, and friendly, you are more likely to be defrauded.
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This builds on a 2006 study sponsored by the NASD Investor Education Foundation, which found that investment fraud victims scored higher on financial literacy questions. Men are also more likely to fall for an investment scam than women.
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Scam artists have long targeted people who are already successful. Back in 2004, convicted felon Eric Stein described his “marks” in an interview with the Wall Street Journal. “They were people who had cash—had made money—and had worked very hard for it,” he told the newspaper. “They were doctors, they were dentists….Some attorneys, not too many. A lot of car-dealership owners, some golf-course owners, some high-profile restaurateurs. A lot of business owners, mostly entrepreneurs.”
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You’d think such people would be too savvy to fall for a scam. But potential victims share certain attributes that put them on the top of a scammers list: They have money to invest, they’re confident in their ability to make smart money decisions, and they’re interested in new investment ideas. Thrifty seniors lose five times as much to fraud as their open-walleted peers, the True Link survey found, perhaps because they are often enticed by potential bargains.
Are You Safe?
A survey by the FINRA (Financial Industry Regulatory Authority) Foundation lists five characteristics that make investors especially vulnerable:
- Owning high-risk investments. People who favor high-risk investments are often targets of fraud: 31 percent of investment scam victims surveyed had purchased penny stocks; 23 percent invested in commodities, futures, or options; and 24 percent had made private investments in Internet start-up companies.
- Relying on friends and family for advice. Some 70 percent of victims bought an investment primarily because it was recommended by a friend, co-worker, relative, or neighbor, compared to 30 percent of investors overall.
- Being open to new investment information. Curiosity has a high cost. The more open you are to receiving new information—three times as many victims went to a free investment seminar than the national sample—the more likely you are to expose yourself to investment scams. Being willing to listen to sales pitches is especially dangerous.
- Failing to check the background of an investment or broker. Caveat emptor is the most fundamental advice before laying out your money, but fraud victims tend to skip this all-important step: 80 percent failed to check whether an investment professional had a criminal background and 70 percent hadn’t checked whether they were licensed or registered to sell investment products.
- Being unable to spot persuasion tactics. Scammers use many different techniques to convince you to invest in their scheme, but if you don’t stay alert, you’re more likely to fall into their trap.
This article originally appeared on Consumer Reports. Consumer Reports has no relationship with any advertisers on this website.