The Internet is like anything else an investor may choose to use, it’s a tool. There’s really nothing magic about it, it’s just a convenient way to disseminate information, and it can be used well or used poorly. It can be used to publish good information or bad; and it can be used to help or to defraud.
There is no reason that an investor shouldn’t use online resources as part of their decision-making strategy. There are many useful online resources, some of which are even free of charge, which can help you research equities before investing. Too, there are plenty of legitimate opportunities that can be found online from those who have created stock trading systems, newsletters, and courses.
There is, however, fraud that exists. Criminals use the online world to perpetrate theft, fraud, con games and other types of thievery, and the situation has reached a point where some individuals have even become afraid to use the Internet to its fullest capacity. In fact, an Osterman Research study showed that among home computer users, 44 percent use the Web and email less than they did a year ago because of problems like spam, spyware, and the possibility of identity theft and Internet fraud. This unfortunate attitude however, is a bit short-sighted; it’s like refusing to use a hammer because of the possibility of hitting your thumb. There’s a lot the Internet has to offer an investor.
However, it’s always wise to proceed with caution, and know some of the warning signs of investment fraud. There is indeed a great deal of investment fraud that is perpetrated via the Internet, but you don’t have to fall victim to it. In most cases, common sense and instinct will tell you what’s real and what’s not.
1. The best way to avoid getting sucked into an online investment fraud is to keep your greed in check. Of course, we are investors because we want to make lots of money. We want to have more than the guy next door, we want to have a flashier car, and we want to have a bigger house. This is a natural part of capitalism, and to a degree, what drives the growth of our economy. But those desires must be countered with a reality check or disaster could strike. A controlled desire for wealth can drive us to achieve great things; uncontrolled desire leads to falling victim to fraud.
2. A lot of online investment schemes promise “guarantees” of incredibly high returns. Beware of any scheme that offers such a guarantee. In reality, if you are an investor, you should know already, there are no such guarantees. We make money in the market because there are calculated risks we take. The guy who puts money into certificates of deposit or treasury bills that generate maybe four percent annually gets a guarantee. We invest in things like stocks, commodities and futures contracts because the very lack of a guarantee is what generates higher returns. If an online investment scheme promises in big letters, “guaranteed high profits,” especially if it guarantees a specific amount, then that should be a huge red flag. Beware of investment programs that have guarantees.
3. Some promoters of investment schemes will use multiple aliases to hide their identity. If you are considering an online investment program, make sure that first, there is a name attached to the program, and second, that the name is legitimate. At the very least, do an online search of the promoter’s name and see what turns up. If your search turns up nothing outside of the one program, that should be a red flag–it’s very possible that the individual is using different aliases for each program they are promoting. And of course, if they feel they have to use aliases, then they more than likely have something to hide.
4. There are many legitimate offshore investment opportunities, but here’s where you have to have your fraud detector on in full force. If you’re sending money to an offshore location, you may have very little recourse if you are defrauded. Offshore investment promoters may be very difficult to track down. That picture on the web site of the skyscraper may be just a picture–the real office may be nothing but a mail drop.
5. Beware of promotions from companies that are not licensed. Research any company or promoter as much as possible before investing, and check it out with your state securities regulator, the SEC, and other government regulating bodies.