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Avoid Investment Scams- 6 ways

With brazen criminals, licenses and certificates don’t matter. Con artists who run questionable operations can sneakily bypass regulation, and no one can put them out entirely — not now, not ever. Plenty of people are victimized and their hard-earned money embezzled.

How can anyone avoid investment scams when crooks are getting more and more crafty? Well, scams are truly deplorable, but there are ways you can take to protect yourself from them. This article suggests those measures; it also includes a practical look at a classic investment scheme and typical tactics that con men employ.

1. The first question to ask: How do they make money?

You probably wonder why you should care about what goes on behind the scenes of an investment offer. What matters to you is the money you’ll make and how the company generates its revenue is none of your concern, right?


If you can’t explain concisely about how an investment works, then it’s probably a sign that you’re involved in something shady. Also, if the people you’re dealing with don’t bother to go into the details about how they plan to return your money only strengthens the assumption that what they operate is a scam.

But I made money and so did my friends, what could go wrong?

Yes, it’s hard to argue with something that has proven to make money even if it’s a fraction of the money you risked. And, to you, it might seem like a good enough proof that an opportunity is legit and provides respite after days of misdoubt.

A quick look at the Ponzi Scheme

Charles Ponzi

Charles Ponzi, the originator of the Ponzi scheme, paid investors with the money collected from new investors. If you ask what is wrong with that, then you need to take up a math class in grade school. The reason why is it’s unsustainable.

The calculation below is a Ponzi scheme applied to only ten investors to make the math simpler. Although this is not the same as Charles Ponzi’s original 50% interest after 45 days promise, this still captures the scheme’s infeasibility.

A similar Ponzi scheme of $10,000 as an initial investment with a 30% interest for life guarantee.



As you can see, by the end of the first year alone, the company that collected the investments of $10,000 for each investor would have $0 in cash and $98,000 in debt due to interest payments. And, just by the 8th month, the company’s balance is -$4000, and if it weren’t for Investor 9’s $10,000 contribution, they’d be $42,000 in debt at the start of the 9th month.

This scheme, however, happens on a larger scale, which means that the first-line suckers are the promulgators of good tidings because, throughout the investment’s life, they will most likely be shielded from the harrowing reality. The actual victims are the ones who come in late because sooner rather than later, the company will run out of investors, and the newcomers may not even see a single interest payment land on their hands.

ponzi scheme table 2

The dangers of not knowing how

Not having a clue about how your investment works could make you Investor 9 or 10 in the table above. Investor 8 might be jumping for joy because the capital has been recovered plus a 20% return, but you, on the other hand, may end up with a loss.

And, if you do know that a faulty system is going on, be concerned about the others jumping on the bandwagon late because what if it was you in their place?

2. Next, ask about the return

The high rate of return is another reason why the Ponzi scheme’s viability is beyond the realm of possibility. A 30% interest per month is just ludicrous and is no way mathematically possible — unless they have troves in the black market.

If the people behind an investment say that they can double your money in the stock market in a few months to a year, walk away. Yes, stock trading and investing are all about gaining alpha but be grounded about your return expectations. The average annual return of the S&P 500 is about 8%, and although some stocks may appreciate greater than others, it does not come without its equivalent risk.

Bonds post a return of 5-6% per year; keeping money in a bank would produce 1-2%. The only way to see a 30% return per month — legally — is if you take on highly leveraged financial products and trade supernaturally well. And, if there’s a living person who can do that, then your investment isn’t something he seeks: why look for other people’s money when you can turn your $10,000 to $232,980 in twelve months?

(click to zoom)

So, anyone guaranteeing an improbable return should be scrutinized; their business, their investment strategy, or whatever they’re doing should be exposed so that the interested public knows how they generate income and returns for investors.

3. Ask about the risk

Being blinded by high returns is a pretty common ailment. Plenty of financially illiterate investors consider only the potential reward and completely disregard the existence of risk. And, scam artists know this very well, and, in fact, they exploit it.

Swindlers know that when they get their prey so drunk from wealth expectations, they’re nearly at the finish line. After employing all other deceptive tactics such us making you think that everyone else is involved and you’re the only one missing out, they know that the only thing that’s left is for you to hand over your money — which is usually automatic at that point.

Knowing the tradeoff between risk and reward is perhaps a remedy to this. The question that you should assert all the time when you’re offered an eyebrow-raising opportunity is, “what or how much do I risk losing?”

Usually, scam-artists don’t even talk about risk because they don’t want to inject any inkling into their attempt to dazzle you. They want you to focus on what you stand to win because your actual risk is all your capital the minute they consummate the deal.

No reward in the world comes without risk.

4. Spot the classic “make money fast” appeal

General rule: Any promise that says you can make money quickly with relative ease is almost always a scam. Look around the internet, and you will see a lot of it, especially those coming from fraudulent forex, binary options, and cryptocurrency brokers.


Advertisements that say “you can make thousands of dollars in a few days” or “it’s as simple as clicking buy and sell and within minutes, you earn profits” has the word scam written all over it. And, even for scams outside the financial markets, the appeal of making money fast may be evident.

Ponzi schemes and pyramiding scams, as examples, are tarred with the same brush — both are unsustainable in the long run. But recruiters in a pyramid scheme do have a distinct tactic: instead of just hyping up the potential gain, they draw out your emotions too with motivational tropes.

5. Pressure selling?

Lastly, you should be aware of pressure selling tactics, and there’s a lot of it. A common one, as mentioned earlier, is everyone’s fear of being left out and swindlers will make it seem like everyone you know, from your dog to Jason at the barbershop, made money except you.

And, another one is the scarcity tactic: scammers buff up the value of their offer by making it look like its supply or time to partake is limited.

The thing you have to do is to be wary of all the tactics. Study them. And, if you feel the slightest bit of pressure into rushing into a decision, restrain yourself and take time to think.


Con men continually develop innovative ideas to dupe unsuspecting investors, but regardless of how seemingly fresh their concept is, the same too-good-to-be-true promise is an inherent characteristic. In the end, to be a more vigilant investor, you shouldn’t only be aware of what’s legitimate from what’s not, but it’s equally important to be pragmatic in a financial sense.

Oh, and if you were paying attention and have read until here, you may have noticed that the 6th tip is missing. Actually, the 6th way to avoid scams is to read more articles here at Intellinvestors! 😉

Thank you for reading this article. If you have any questions or comments, post them below. Also, if you are looking to invest or trade with a broker, here is an article for you to learn how to select the best one. Click on the button below to read.

Edited by: MC Davila

25 thoughts on “Avoid Investment Scams- 6 ways

  1. Smart investors, not a scam, lets check this out.

    Methods of money inbound is critical in determining their viability and scammyness.

    The Ponzi Scheme provides an interesting sub-story to this discussion, robbing Peter to pay Paul effectively.

    Unfortunately, this still happens in the world we live in.

    Risk vs return analysis and review is an asbolute must.

  2. Wow! This is such an excellent article based on the fact that I personally have been duped on countless occasions while I was in search of greener pastures. How I wish I came across this post earlier. Irrespective, the things stated here are spot on and I like the part of getting the clear picture of how the company generates their money and also the part of learning the risks involved so that one can be on the safe side. Such an insightful post. Thanks

    1. Thanks, RoDarrick.  

      That is the reason why we write about these topics.

      We want to inform and educate more people to stop scam artists from their tracks.

      And indeed, spotting scams is more about being more risk-conscious and being very curious about how a company makes money.

  3. Some great pointers here to help to spot scams before you get sucked in. 

    The best point you mentioned for me was to understand how the company is going to make money to pay out investors. If this doesn’t make sense to you it is most probably a Ponzi scheme or similar. If the company can’t explain it, or it doesn’t make sense to you, then it would probably be an unwise choice to invest in.

    Also knowing what your risk is, is also valuable informatin, because then you can also prepare yourself in case things turn sour, as you knew exactly what you were getting into in the first place.

    1. That’s absolutely right Michel!

      It really has to make sense because it’s money we’re talking about — hard-earned money.

      The promise of a high return isn’t enough, and it’s not a reason to invest.

      Investors need to know in detail about what they’re getting into, how profits are generated, and the risk involved.

  4. Honestly, I have always thought of it as cons and liars until these past few years.  I still do not know all the ins and outs but really appreciate this article and I plan on looking up number six here soon.  It really is one of those hit-or-miss situations that you really need experience with, like being “book smart” vs” street smart”.  You can be the smart person via school however “street dumb”, as in being a gullible person who is the type to always get robbed.

    1. Hey Tru2yu, it’s so cool you saw how we snuck in the 6th tip at the end! 😀

      Well, sometimes you do have to experience something to have a genuine viewpoint, but you could also learn from others.

      Con men, regardless of the scam they operate, function under a pretty similar framework.

      And, the points we made in this article highlight some of the common ones.

  5. Hi, Ron.
    Thanks for sharing your thoughts on six ways to avoid investment scams.
    I believe maximum people are cheated at some time or the other by these scams like Ponzi & Pyramid Schemes (I learned about the person- Charles Ponzi, for the first time. I always thought Ponzi as the dictionary word to describe such scams). It’s only the education and awareness which can save us from the scam net. Thanks for publishing such an informative article.
    By the way, I liked the sixth tip most, it was super cool (LOL).
    Warm Regards,
    Gaurav Gaur

    1. Thank you so much, Gaurav Gaur!

      Yes, the Ponzi scheme was named after a real person :D, and that person lived quite an interesting life, I might add.

      Indeed, continuous education and perhaps being practical with what’s actually possible are two ways for anyone to block out scams in their life.

      Loved that you spotted our sneaky 6th tip! lol

  6. Oh thank you, I learn new things after reading your tips here. I remember one of a friend always avoid talking about risk involved in his ‘investment scheme’. Now I understand why he did it. The jargon of “make money fast” from scam investment or other making money online platform is also indeed true. I remember reading several reviews about these type of programs, and all of them turn out to be scam. I believe there is no shortcut to earn a lot of money (unless you win lottery with super big luck). Such a valuable lesson. Thanks

    1. Awesome point Alblue! It’s true. Not all of us are super lucky to win the lottery, so it’s best if we stick with what we can control.

  7. Interesting article. I remember watching Lost and one of the characters was a con artist and it shows some of the Schemes that he did. I can never do that kind of thing. I have a lot of filters when it comes to this kind of stuff. I guess you could call it a healthy degree of skepticism.

    you are definitely right about decision pressure. There was this one thing I was getting into and they said I had to decide by a certain time or I would miss it or something. Luckily I didn’t take the bait. But I see how that false sense of urgency could trick people.

    I think you are right it would be best to get a trustworthy broker instead of getting into one of these types of schemes.

  8. Some very wise words. Your Avoid Investment Scams – 6 Ways is is brilliant advice I have just bookmarked the page so I can refer to it in the future.  One thing I do not like is ‘The Pressure Selling’ . If I have some salesman trying the pressure sell on me than I am long gone.  There is no need for this.

  9. This is certainly the most educating post I’ve come across today. Most people are always eager to make money, neglecting the the saying “hard work pays”, this is why most people get duped. But after reading this post, I’ll definitely not be a victim to these con men. But most importantly, I’ll look out for the 6th tip, thanks for sharing 

  10. Τhank you so much for this informative and well detailed article. It’s so helpful to know about investment scams on the internet and how to recognize them. The questions are realistic and need to be asked in order to avoid contact with scammers, who are really many in the online world. Thanks for another time.

  11. Scammers are truly everywhere, they find a way to dupe people and take our hard earned money away, that’s not a good thing at all. I keep seeing new tricks. There was one that talked about investing and making 50% back in a week, what’s your gain then was my first question plus how do you intend to do it. Well, because I want to learn more and stay away from scam, I’ll be sure to stick to your sixth way of avoiding investment scam. Thank you.

  12. Thanks for this informative article,  with the rate at which a lot of scams sites are all over the internet, this is indeed going to keep me in check not to fall a victim of been scammed again, the question have i been failing to ask myself Is how they get their fund and not doing a thorough research as well obviously I’ll be sticking around this website for more information.

  13. It is always shocking when I hear a huge organization or respected individuals have been arrested or are being investigated for financial crimes. It is during this period that you hear their operating licences are fake and so on.

    As you have said, we cannot just trust someone with our investment and leave it at that. That is ignorance of the highest level. We need to ask ourselves what the catch is for every investment we make. No one wants to make you richer if there is nothing in for them.

    Thank for for such great insights. Everyone should read this and familiarize themselves with devious schemes out here.

  14. With Bitcoin’s price or value going exponentially, I found myself suspending my sanity and investing in some HYIPs dealing with Bitcoin. I thought, “Although the promised return is impossible to be sustained in a normal investment plan, this is Bitcoin. The exponential growth will cover it up”. But I was wrong and lost all the money I’ve invested. Scams are scams no matter what. 

    With the tables you shared here, it is now clear to me how in just one year, the opposite can happen to a pyramid scheme operator. Unfortunately, only few people have the opportunity to learn about this. No one is teaching them how ponzi schemes work, so I feel this responsibility of sharing this to others. I will be sharing this article to my friends on Facebook.

  15. Oooh, there have been so many investment scams that most people are going to have their guard up when something sounds too good to be true. However, many of them seem to keep working so these are good tips to help keep your hard earned dollars safe from scammers! A high pressure situation is always a red flag — thanks for pointing that out!

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