Home Business 6 Investment Scams Triggered By Emotions & Ways To Fight Them

6 Investment Scams Triggered By Emotions & Ways To Fight Them

by Jovica Radulovich

We sometimes make investment choices based on gut feelings. In some cases, it is true that the higher the risk, the higher the return, but you should never let your emotions get the best of you. Otherwise, you may end up getting scammed.

Financial scams and frauds have been around for a long time. They can even be dated back to 300 B.C. A lot of things have changed since then, but we, as humans, are still psychologically vulnerable and can get greedy sometimes. Financial scammers strategically use psychological traps to corner us into financial scams.

In this article, we are going to cover everything you should know about how scammers use psychological tools to scam us and ways to better equip yourself to get out of those scams quickly and safely.

1. Greed-Driven Ponzi Scams

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Ponzi schemes are one of the most well-known scams around the world and are named after the scammer Charles Ponzi.

These types of scams promise to offer high returns and target new investors. The high yield promised to investors is actually paid by the money taken from newer investors. There is no actual business model or profit generation, and whenever the scammer runs out of new investors, the whole thing plummets.

Here, the initial investors have a good chance of making a profit. They then recommend these investment ideas to their friends and family. The scam continues as more people participate.

However, the final investors will never get their money back and may suffer unbearable loss.

How To Fight Ponzi Scams?

Skepticism is your best tool. You are likely to be recommended Ponzi scams by your friends or relatives. But you must do your own research and find whether those investment plans are legit or not. There are many websites like NoBSIMReviews.com to help you gather information about all sorts of scams. But you have to be skeptical regarding where you invest and how much they promise to return.

2. Pyramid Schemes

Pyramid schemes are a lot like Ponzi schemes and are harder to detect. These scams also run on new investor money, but here, each investor is promised a return if he can bring in another investor.

This is how a chain of new investors is formed. Usually, low-quality products are sold to hide the scams and show the outsiders that they have a business model. Just like in the case of Ponzi schemes, pyramid schemes also plummet when there is no new investor.

Pyramid schemes are usually organized by a group or evil corporation who even have legal teams to cover for them.

How To Fight Pyramid Schemes?

Again, you have to be skeptical and do proper research about the company and the business.

3. Knit-grouped Affinity Fraud

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Affinity frauds often occur in senior groups. As the name suggests, the culprit is often someone you trust. He may be one of your friends, family members, or a member of your societal group.

They will use this trust to convince an influential person of the group and slowly convince other people of that party to invest, as well.

The rewards are typically high returns, and in most cases, these also work as Ponzi scams where earlier investors are paid off by newer investors. These scams are less likely to be reported to official authorities and can destroy family and friendship.

How To Fight Affinity Frauds?

Aside from being skeptical, it is always best to involve an objective third-party who has no relation with the supposed scammer. He can help you identify whether it genuinely is a good investment idea or not.

4. Drastic Increase In Stock Price

These scams are commonly known as “Pump & Dump”. Stock prices are artificially increased. The stock is then hyped up by groups. This gets more investors to invest in that stock without doing proper research. A few investors sell their prices at a highly-inflated price and stop hyping the share.

Soon the hype goes down, and the stock price crashes and the new investors lose money.

Stock markets are volatile, and plenty of scammers target investors to earn big bucks and make quick exits.

How To Fight “Pump & Dump” Scams?

The reason these scams become successful is because of the fear of being left out or FOMO. This is a common form of anxiety and enables you to make rash decisions. Investing in a stock market is all about timing. So when someone sees a lot of people investing and making a profit, they jump on the bandwagon immediately.

Do not rush. Instead, check out the company history and find why the price increased so fast. Do not invest just because others are doing so.

5. Internet Investment Opportunities

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Emails scams have been popular since the introduction of the internet. The scammer pretends to be someone who is in a high position at a renowned financial institution.

They insert a designation and send you an email in a very formal tone. The email will most likely be about policies, incentive opportunities, or higher interest. The scammer will ask you to transfer your money to another account to receive supposed benefits, and once you send the money, he will vanish.

How To Fight Internet Scams?

Do not let their false authority fool you. Whenever you get an email from a financial institution, call them and confirm whether they actually sent a mail or not.

It does not matter how authentic or formal the email sounds; you have to make sure it is legit, and that is precisely what the customer services are there for.

6. Misselling Frauds

This is a sales scam where the seller hides vital information and intentionally sells a faulty product. This especially happens with life insurance policies. Old people are preferable targets.

Life insurance allows you to save your money in case of unfortunate events. But this can also take the form of a scam where premiums can be charged, and later, the benefits are not delivered as foretold.

How To Fight Misselling Frauds?

In this case, it is again best to have an objective third party to go through the whole deal. For selling false insurance, fear and security are promoted aggressively to drive the investors to an investment. Always have a professional back you up while making sensitive financial deals.

Takeaway

Scammers use psychological tools to get the best of us. To protect yourself, all we have to do is be skeptical, not make rash decisions, and always get professional advice.

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