Investment fraud is one of the oldest scams going. Someone who appears trustworthy holds out the prospect of generous returns on an investment.
But it turns out there really wasn't an investment. The trusted individual was simply pocketing the money.
Since these scams are so widespread, AARP set out to learn if there are common characteristics of people who become victims. As it turns out, there are.
The survey by the AARP Fraud Watch Network found that people most susceptible to these schemes are not inexperienced investors, but just the opposite. They possess a high degree of confidence in high-risk, unregulated investments -- perhaps too much confidence.
A touch of greed
In fact, they usually own stocks and tend to trade more actively than the typical investor. They may also have a touch of greed and are willing to consider unregulated types of investments.
Rather than being skeptical of unsolicited telephone and email pitches, they tend to be willing to listen, since they place a high value on wealth accumulation. Victims also tend to be older, usually retired.
AARP has tailored a new warning campaign about investment fraud to the inclinations of the typical investment fraud victim. Included in the campaign is an online quiz, so consumers can test themselves. Take the quiz and see how vulnerable you are.
The investment fraud problem has been worse in recent years because of economic changes. Not only are more retired people living without a defined benefit pension, interest income from traditionally safe investments like CDs and bonds has been non-existent. That increases pressure to maximize return in other ways, and that's where inexperienced investors can get into trouble.
Only invest in things you understand
AARP says consumers should only invest in things they understand, under the guidance of a trusted and credible broker or adviser. The adviser should not be making a big profit on whatever investment you choose, and they should fully disclose any fees or compensation.
One final gauge to judge an investment: there is a relationship between risk and reward. An investment that promises a large return will always carry a higher risk. The safest investments offer only modest returns.