Top Signs Of A Stock Scam

There are all sorts of scam artists out there that will try to steal your money. Scammers often target investors. Only a small percentage of investors get scammed, and the fact that these scams are out there should not deter you from investing in the stock market. As long as you use common sense and are aware of the warning signs of a scam, you should be fine. Here are five warning signs of a stock scam:

1. It promises amazing returns. On average, the stock market produces a return of about 10% a year for investors. Some years are great (with about 20-30% returns) and others are bad (negative returns), on average, the return is about 10%. An amazing investor can hope to beat the market by perhaps 5%, and most mutual funds just hope to beat the market by a few percentage points over time. If someone is promising you 50%+ returns year-in and year-out, beware.

2. It guarantees you a return. The stock market involves risk. The only way to get a guaranteed return is to buy a bank CD or treasury bond. Because there is no risk, your return will be about 5%. IF someone is guaranteeing you an amazing return (like 25%), beware.

3. You found out about the "investment opportunity" through an email or an infomercial. Do I really need to explain why this is the sign of a scam? Does anyone really think the best investment opportunities are found via spam emails and infomercials at 3 am? You would be surprised though how many people fall for these scams.

4. The company touting the investment is not well-known. Companies like Fidelity are not going to associate themselves with a scam. Pay attention to who is behind the scenes.

5. The person offering the investment opportunity tries to hard sell you. He isn't pushy because he wants to help you. He is pushy because he wants to help himself.