Investments are
the backbone of your financial planning. Your investments secure your future,
enabling you to retire with dignity, building wealth for your loved ones.
Sometimes these vital funds get in the hands of scammers who cheats you
further. Of course, you don`t make them, intentionally!
In order to
avoid such investment scams, you can take precaution. Hopefully, you
are pretty much clear - how to prevent yourself from becoming a victim of
investment fraud?
Further, comes
the type of investment fraud that can fool you. Down below Patrick
Kavanagh from KRI property group has discussed 4 most common types of
investment fraud schemes accessible in Chicago and what
protections and recourse do you have to get out!
Type 1 - High-Return or “Risk-Free” Investments
In this scenario,
some fraud brokers and dishonest investment advisors endorse wrong assets to
investors that don't meet their investment objectives or financial situations.
Their art of presenting low-risk investment opportunities convince investors to
invest and yield optimal higher revenue.
Inappropriate
recommendations are likely to take place when a broker sells speculative,
high-risk investments such as options, futures, or penny stocks to people - who
are near retirement or are retired and have a low-risk tolerance.
Type 2 - Pyramid Schemes
In this scheme,
fraudsters enroll investors through a promise of payments, rather than
supplying returns or sale of products or services. As investors multiply,
cash flow shrinks, and most of the investors are unable to profit - as such,
pyramid schemes are unsustainable and often illegal. By claiming to have
legitimate assets to sell, these deceivers take off your money and use it to
pay off new investors - who are in their early stage of investment.
Type 3 - Ponzi Schemes
These are a type
of illegal pyramid scheme that already fooled the residents of
England. Charles Ponzi, the mastermind behind this game, who fooled thousands
of real estate investors from England - investing in a postage
stamp speculation scheme. Then, the Ponzi scheme continues to work on the same
“rob-Peter-to-pay-Paul” principle. Money from new investors is used to pay off
earlier investors until the entire pyramid of fraud collapses.
Type 4 - Promissory Notes
A promissory note
is a way of scamming investors via a loan. Fraudsters/company helps investors
to release credit from a bank and use it. Hopefully, an investor agrees to loan
money to the company for a set period of time. In exchange, the company
promises to pay the investor a fixed return on the investment, typically
principal plus annual interest.
Most established
companies have been borrowing relationships with financial institutions,
therefore this type of transaction among individuals is rare. Individual
investors should exercise extreme caution with this type of investment
frauds.
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