When someone sees a red flag, they know it means to either stop or use caution as danger lies ahead. The same holds true for investments. Red Flags in dealing with investments should be treated more like the flashing red lights and bells ringing at railroad crossing gates. It not only means danger lies ahead, it means stop cold and don’t go any further. In investments, there are many issues that can be considered a red flag. Whether or not it is just one, several or all of them, you should stop and not invest. If you ignore them, you have a 100% chance of losing your money. So what are the red flags of investments?
Here is a listing of the most serious ones :
- A company says that because they are an Internet company the standard rules of being licensed and registered does not apply to them.
- The company is basically anonymous as they use free website hosting, free E-mail services (Yahoo, Google, Hotmail, Gmail, etc.) instead of paying for a secure website or having an E-mail address with the company’s name in the address.
- Your contact person only has a first name and is using a free E-mail address, not one using the company name.
- They say your principal (amount you give them) investment is “guaranteed,” or they promise a “guaranteed” rate of return.
- Any investment that requires only a small administrative fee, but promises a large return, i.e.: a $30 administrative fee, but will pay you $50,000.
- The program is promoted as finally allowing the little guy to obtain the same financial products that until now were only available to the rich or super wealthy.
- They claim the program is registered offshore (outside the United States), and therefore is not subject to the SEC Rules and Regulations. If they solicit U.S. Citizens (even if just one) they are subject to the SEC Rules and Regulations. See our Alerts & Hot Topics link Myths of Offshore Corporations for full details.
- Any investment program that does not provide clear and detailed explanations of their investment vehicles.