Now that we understand the difference between saving and investing, let's talk about the pitfalls that one can encounter when investing. If we disregard the risk of the value of purchased assets decreasing, the biggest fear of every investor is falling into the trap of scammers.
Unfortunately, the reality is that scammers continually refine their methods to lure money from more naive individuals. To minimize the risk of falling victim, it's good to have at least a basic understanding of typical signs of fraudulent behavior in the investment field.
Promise of unrealistic returns
If you receive an email offering a "fantastic" investment opportunity with a promise of doubling or tripling your funds, you should be cautious. Think about why someone, whom you don't even know, would want to double or triple your money for you. The best course of action is not to respond to such offers at all. Of course, it's harder to reject such offers when they come from someone you know or even from a family member. Remember that it's your money, and you're the one who decides what to do with it, and you're the one who will bear any potential losses. Be strong and resist temptation. And remember the intertwined relationship between returns and risk.
Online stories of celebrities with a recipe for miracle wealth
You may have noticed advertisements on websites and social media, often disguised as news articles, promising to reveal investment secrets under the name of some successful celebrity, such as Elon Musk.
Avoiding these online temptations requires not only general caution but also a certain level of media literacy. The best approach is, of course, not to click on such links at all. If you're already there, you've probably ended up on the landing page of an unscrupulous entity that will try to extract your contact details at this stage at the very least. Never provide them to such an unknown entity, especially when they claim to be associated with a well-known figure.
Exhibiting expensive clothing, watches, or luxury cars
You may have encountered someone trying to persuade you into an investment "face to face." Perhaps they leaned in by wearing designer clothes, an Omega watch on their wrist, and the keys to a luxury car on the table. This manipulative technique aims to give you the impression that you're dealing with a successful investor, so it's clear that when they recommend something to you, they know what they're talking about because they got rich themselves. Don't let such glamor lure you in. At best, all those items are borrowed. At worst, you're looking at someone who went deep into debt to buy those items and is now seeking other desperate people to help pay off their debts. Manipulation tactics like these usually involve pressure and repetition, insisting that you're facing a unique investment opportunity that you must decide on right here and now. Your response should be to walk away from such behavior.
Investments in unregulated environments
Sometimes you may come across an investment opportunity in an asset that's not subject to any regulation. Such an opportunity may seem forbidden fruit, which may give you the impression that you're avoiding the influence of the state, and therefore, such an investment must be super advantageous. However, that's a mistake. State regulation primarily exists to protect those who don't understand or don't understand enough about investing from investments in dubious assets. The absence of regulation should, therefore, not be an encouragement for such investments but rather a signal to steer clear of them. To some extent, investing in cryptocurrencies is also unregulated. Therefore, it's essential to gather as much information as possible before deciding on such an investment.
