You already know that every investment carries a degree of risk. No matter how much research you do before investing your retirement dollars and how much you trust the company or advisor you’re using, it doesn’t mean you can’t become a victim of investment fraud. When it comes to protecting your retirement funds, though, you need to be extra vigilant against the following red flags:
Questionable Selling Tactics
A broker who works on commission doesn’t necessarily need to put the needs and wants of their clients first. Instead, the broker might encourage you to invest in an investment that pays more commission in an effort to make themselves richer at your expense.
Whether you’re a beginning investor or a more seasoned one, an unregistered investment isn’t where you want to put your retirement funds. The only exception to this is if you are already so rich that a loss from this type of investment wouldn’t make a difference to your bottom line. The primary reason for avoiding these types of investments is that they don’t have to comply with the regulations and laws that are designed to protect you.
Borrowing Money to Invest
An investment salesperson should always establish both your level of experience in regards to investing and your tolerance for risk. A recommendation for suitable investments would logically follow this information. Under no circumstances should you be encouraged to borrow money, such as from your retirement account — or anywhere else for that matter — in order to invest.
Inability to Cash Out
Being able to turn your investment into cash in hand is known as its liquidity. In order to better manage your retirement, you need to have investments with various degrees of liquidity. You can easily turn your investment in stocks and bonds into cash, for example.
In other cases, you might be constrained by specific liquidity limitations or you might have fixed-term securities that mature only at a specific date. If you aren’t able to easily get your investment money, the investment could be fraudulent. Be concerned if your investment advisor suggests that you use your anticipated payments to reinvest in another option that promises higher returns though.
Investment fraud is more common than you might think. The above signs are only a few indications that your retirement investments could be at risk.
George is the CEO of Expat Group Limited, based in Hong Kong.