Investigate Before You Invest - Ten Do's and Don'ts For Investors
The following tips are offered by the Department of Corporations as "guidelines" for prospective investors. The bottom line with any investment is research, research, research!!! You can never have too much information.
- Be cautious when strangers make contacts by "cold" phone calls, unannounced visits to your home or contacts from mailing lists. Phone calls from strangers offering get-rich-quick schemes can be a sign that a "boiler room" scam is on the line. Operators rent offices with impressive addresses and hire unlicensed salespeople to work banks of phones calling individuals from lists they buy. They promise fast profits and usually do not deliver.
- Question outrageously fantastic promises of extraordinary returns of 25%, 50% or even 100% on your money in short time periods. Too-good-to-be-true offers usually are just that.
- Shy away from high pressure sales techniques requiring hurried money commitments because "tomorrow will be too late." Some fraudulent schemes have used messengers to pick up investors' checks almost as soon as they were off the phone -- this is usually the last contact the victims had with the companies.
- Avoid investments where the seller has little or no written information about the company or written information about past performance. But remember, even printed materials, no matter how slickly presented, can be bogus -- read all materials carefully, ask questions and check with experts.
- Be wary of investments sold on the basis of rumors, tips or supposedly "inside information."
- Ask the seller to give you written information about the investment, including the prospectus or offering circular and financial statement. Read them or get help reading them before you sign a purchase order to pay for investment. Such information is required for many types of investments, including stock offerings, limited partnerships, franchise offerings and mutual funds.
- Get competent help. Consult with your registered stock broker, banker, lawyer, accountant or real estate agent. Check out the company with your Better Business Bureau, securities administrator or a knowledgeable friend or family member.
- Contact government agencies to find out if a company or individual is properly licensed to do business or has any history of violating the law. Failure to properly register or a history of trouble with authorities should be a red flag to any prospective investor.
- Deal with established businesses whose reputations are known in the community.
- When in doubt, wait. If something seems fishy, if your questions are not satisfactorily answered, don't commit your money. Remember, even with legitimate investments there is always the risk of losing money; there is no point in stacking the odds against you by putting your hard-earned savings in an investment that may not be on the up and up.