Posted by Mike Smith :: August 8, 2007 @ 7:26 am

How many of us have seen an ad similar to the following:

Risk-Free Investment Opportunity

$500,000 investment with min. 72-108% consistent returns
Flawless Loss Prevention
Serious Inquiries Only

It seems that nearly every day, someone else gets victimized by the latest scam. The variety of scams seems limited only by criminals’ imaginations. What many of these schemes have in common is that they prey on our hopes and our willingness to trust, given the right promises.

We all want to believe that there are people in foreign countries who will give us large sums of money for free. We’re all looking for the next big stock or investment with incredible returns with no risk. Somewhere along the way, our greed overtakes our common sense and clouds our judgment. You can imagine how people become victims of such scams.

Two rules of thumb can generally identify scams:

• If it sounds too good to be true, it probably is

• The higher the return the greater the risk

The second rule is the golden rule of investment. If you are offered an “investment” with little or no risk, then you should expect modest returns at best. Be leery of any offerings, even those with good sounding names like “prime bank securities,” if they promise incredible returns with little or no risk. Are there solid investments out there with great returns? I believe there are. Are you likely to find the investment from a classified ad in your local paper, through a forwarded email, or from an unsolicited telemarketer? I don’t think so.

If you have any reservations about any savings or investment product, be sure to consult your financial advisor or similar trusted source before investing. This trusted person should be able to verify whether you are looking at a registered, legitimate opportunity or are being solicited as the next victim of a known scam. The US Securities and Exchange Commission is another excellent source of information regarding many different types of investments.

All of the negative news that we hear is bound to make us lose faith in people and foster a general distrust of investing. I believe that it’s important to separate our thinking to differentiate between scams and legitimate investment opportunities. By being mindful of our information sources, keeping our greed in check, and setting reasonable expectations for the growth of our money, we will all be well prepared to sort the good from the bad.