Don't fall for investment opportunities that sound too good to be true. — PM Images/Getty Images
En español | Slippery salespeople. They lie. They cheat. You know they're out there, and you believe you're on your guard. Yet they get past our defenses again and again. What's their secret? They manipulate our emotions—not only fear and greed but also our warmer feelings, such as friendliness and a desire to please.
People who live honest lives find it hard to believe that chatty men and women, wearing good suits and designer shoes, will cheerfully deceive them, so we offer our trust. Those of us in midlife and older are their particular targets. We're where the money is.
When it comes to avoiding misleading sales, a little knowledge turns out to be a dangerous thing. Those with investing experience are more susceptible to fraud than those without, according to a study by the Washington-based Financial Industry Regulatory Authority (FINRA). Men are more gullible than women. They're more willing to gamble or feel more confident that they understand the risks.
Salespeople rope in their marks with approaches that are tried and true. Here are my top five outrageous practices to watch out for:
- "People who made this investment are already earning 50 percent a year!" Other versions include "always beats the market!" and "high fixed returns guaranteed!" No high-return investment is guaranteed. Nothing earns 50 percent a year or even 25 percent, over time. Never buy anything based on a promise of thrilling, get-rich yields.
- "You can trust me because we belong to the same church" (or temple, country club, bowling team, whatever). Con men don't just call up strangers on the phone. They find victims among their own social group. Don't assume that financial salespersons share your values (such as truth-telling) just because they sing in the choir. When you lose money, they'll beg for forgiveness by claiming that they truly believed the investment was good. ("I put my own mother in it!") Don't forgive, and warn your friends away.
- "This investment is registered with the Securities and Exchange Commission!" That makes it sound safe. But the SEC doesn't vet investment products. Assume that anyone making this statement hopes to mislead you.
- "I specialize in conservative investments for seniors." When advisers make that claim, 46 percent of their listeners are more inclined to heed their counsel, a FINRA study of fraud victims found. In fact, most of these "specialists" probably took no more than a weekend course. Their true expertise lies in selling high-priced investments and annuities at free-lunch seminars.
- "I'll earn a commission on this sale." Here's a surprise. Brokers who declare their conflict of interest when touting bad investments are especially persuasive, according to a study by Sunita Sah, an assistant professor at Georgetown University. With their declaration, they're subtly saying that buying will help them out. That pressures you to cooperate.
See also: Protecting your retirement savings
On paper, these ploys sound obvious. In person, however, they can grab you. Or rather, grab your money. Stick with investments that have worked for you in the past, and leave "safe, guaranteed, double-your-money" pitches alone.
Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW.
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