Avoiding scam investments

Posted on: 07 March 2014 by Olderiswiser Editorial

Could you cope with losing your life savings overnight to a mystery voice at the end of a telephone using high-pressure sales techniques?

phone scamOne of the UK’s top policemen has revealed the devastation and embarrassment of “boiler-room” fraud. How normally careful and sensible investors of a certain age, after a lifetime of frugal behaviour, are lured into scam investments on the advice of a stranger – and end up losing thousands, ten of thousands or hundreds of thousands of pounds.

If ever there was a reason for seeking financial advice from an expert, this has to be it. Find someone you can trust – and meet; someone with a long-term local involvement, or someone who comes with a recommendation, or someone who has a proven track record and reputation in the investment business over a number of years.

We all shake our heads when reading or hearing about these scams. The reaction is usually the same. “We would never be that stupid!”

Be warned. The people conned are not stupid. They would not own property, have good pensions, savings and investments if they were not financially aware. “Boiler room” scams are incredibly sophisticated; they work off lists of investors who have a track record of putting money into companies. There appears little data protection when it comes to this sort of information being widely circulated.

If there’s a common thread, the victims are usually around pensionable age, live on their own, or in rural areas where the telephone is the main means of communication. The “boiler-room” callers, already aware that the victim has been an investor, are trained to exploit those that are lonely and happy to talk to anyone, even a stranger, on the telephone.

The “boiler-room” scam got its name because the fraudsters are crammed into a small call centre using high-pressure sales techniques. The bogus callers attempt to con investors into buying shares than are non-existent or so worthless they are impossible to sell.

The commodities on offer are gold, rare metals and carbon credits. Because these investment opportunities are “rare”, the victims are encouraged to move quickly and not spread the word.

Another weapon of the fraudsters is the embarrassment the victims feel. The shame of being taken in, of losing money that has taken a lifetime to accumulate, leaves many victims suffering in silence, keeping the crime secret, even from their families.

The loss of money is bad enough, but the consequences often remain with the victims for the rest of their days.

One such person, Joan Mayer (a 78-year divorcee from Hampshire) revealed that part of the six-figure sum she lost came from taking equity out of her house. Having already invested in carbon credits, the “extraordinary” opportunity to take part in a gold-mine floatation was irresistible.

“It was only when that floatation mysteriously managed not to happen that I realised I was deep in it.”

Last week police arrested over 100 suspects, the majority British, in a series of co-ordinated international raids in the UK, Spain, the USA and Serbia.

Commander Steve Head, the City of London police, said: “We expect this network alone to have upwards of 1000 victims and millions of pounds has been taken. You see real victims in real communities whose lives have been devastated. Savings that they thought they could rely on in their old age have gone in a heartbeat.”

There might be a little money coming back. Police seized cars, including an Aston Martin and a Ferrari, more than £500,000 in cash and luxury watches.

Hopefully, we can all watch the development of the latest financial fad – the Bitcoin – from a safe distance (i.e. not be involved). The news that one of the Bitcoin exchanges has filed for bankruptcy has not come as a surprise to many financial pundits.

MtGox, based in Tokyo, has lost 744,000 (or 6%) of the 12.4 million Bitcoins in circulation. There can only ever be 21 million in total. MtGox was once the dominant platform for trading the virtual currency, but has admitted that half a billion dollars has gone missing!

One financial expert declared: “It’s the biggest bank heist in history – aside from when Saddam Hussein ordered one of his sons to withdraw $1 billion from the Iraq central bank in 2003!”

Sensible financial advice means you don’t have to gamble to build up and sustain a financial portfolio that will protect you in the later years. You can take risks in a controlled environment – and know you are taking them – as part of an overall strategy.

Warren Buffett, now 83, is widely regarded as the most successful investor of the 20th century – and he’s still going strong into the new Millennium!

Forbes Magazine has just ranked him the fourth richest man in the world with $58.2bn. Last year his high-profile investment firm, Berkshire Hathaway, made a record profit of $19.5bn (£11.6bn). Yet, it underperformed the S&P 500 share index for the fourth time in five years.

“We expect to fall short,” explained Buffett, “in years when the market is strong. We have underperformed in 10 of our 49 years, with all but one of our shortfalls occurring when the S&P gains exceed 15%.”

His honesty is disarming and he openly admits to making mistakes. “Fortunately, my blunders usually involved relatively small acquisitions. Our large buys generally worked out well and, in a few cases, more than well. I have not, however, made my last mistake in purchasing businesses or stocks. Not everything works out as planned.”

Many investors hang on to Buffett’s tail because of his track record; he makes investing successfully look easy. It’s not. Your financial adviser will tell you that.

There are good years and bad years, but it’s about the long-term planning.

That’s why successful financial advisers satisfy current clients and attract new ones. The mere fact a financial adviser remains in business is a pretty good guide that they must be doing something right.


This article was written by Worldwide Financial Planning.

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