published Friday, June 29th, 2012

BizBulletin: Beware of scams before you invest

Jim Winsett

Q I have a little money to do some investing, but I hear that there are a lot of scams regarding investments. How can I know where to invest my money wisely?

A Investment scams are getting more sophisticated, and as a result more difficult to detect. Scammers are quite talented at deceiving people, which results in more victims. Usually, there are patterns that come up to raise those "red flags."

Scammers use real-life situations, fake websites of legitimate businesses, and sharpen their skills to outwit even savvy investors. Scam artists are experienced at the art of persuasion, and know which questions to ask to make you most susceptible to their pitch.

Ever wonder how scammers do what they do? The FINRA Investor Education Foundation provides some interesting theories on the science behind scams. Here are some of the most common tactics:

• The "Phantom Riches" Tactic -- dangling the prospect of wealth, enticing you with something you want but cannot have. "These gas wells are guaranteed to produce $6,800 a month in income."

• The "Source Credibility" Tactic -- trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."

• The "Social Consensus" Tactic -- leading you to believe that other savvy investors already have invested. "This is how _ got his start. I know it's a lot of money, but I'm in -- and so is my mom and half her church -- and it's worth every dime."

• The "Reciprocity" Tactic -- offering to do a small favor for you in return for a big favor. "I'll give you a break on my commission if you buy now-half off."

• The "Scarcity" Tactic -- creating a false sense of urgency by claiming limited supply. "There are only two units left, so I'd sign today if I were you."

Never rush when making any purchasing decision, and do not be afraid to say no and walk away.

For more tips on smart buying, donating and investing, go to www.bbb.org. Also, visit www.saveandinvest.org, to view the full article, and check out the "Scam Meter" which helps to determine if your "investment" may be a potential scam.

Get answers to your questions each Friday from Jim Winsett, president and CEO of the Better Business Bureau Inc., which serves Southeast Tennessee and Northwest Georgia. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN, 37401-1447, or by emailing him at dflessner@timesfreepress.com.

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