3 Steps Towards Diminishing Fraud Risk When Investing

So you have decided to invest some of your hard earned cash and want to make sure you don’t get burnt by a shady swindler? After all you have every right to be careful, as a matter of fact, it is your responsibility. You probably wouldn’t buy a house without doing your homework first would you? The same thing applies to investing.

1- Is the person that is offering the investment to you authorized to sell it?

In Canada, each province and territory manages its own regulatory authority that is responsible for listing all investment professionals and enterprises. The best way to verify if the person offering you a placement opportunity is entitled to do so is to verify with your province’s authority.

For example, here are the names of the major provincial regulators in Canada: the Ontario Securities Commission, the British Columbia Securities Commission, the Alberta Securities Commission and the Autorité des marchés financiers du Québec.

It is every investor’s responsibility to do a background check on a firm or a professional and confirm their right to be active in this field of expertise.

2- Were you given the complete and written information about the investment that interests you?

When a person offers you a placement, he or she must give you the following information:
The type of investment (shares, bonds, etc.);
The level of risk (from low to high);
The liquidity level of the placement (to establish how easily you would be able to get your money back and under what conditions);
The fees related with this investment.

Also, there is a resource available online called SEDAR that lists the public securities documents and information filed by public companies and investment funds with the Canadian Securities Administrators (CSA). Looking on this site for the documents related with the investment you are interested in is a great way to make sure it’s legitimate.

If in the end you can’t find the information you’re looking for, it’s probably best to pass on this opportunity.

3- Is the investment you’re being offered too good to be true?

In general, the higher the return, the higher the risk. This is one the most fundamental rules in the investment game. In other words, if you are offered higher returns than what is generally available on the market, without any risk, stay away.

Also, some numbers may look realistic at first sight, but become far-fetched after simple calculations. For the inexperienced eye, a 2% monthly return without any risk may seem normal. But this is far from the case, as this would correspond to an annual return of over 24%.

In the end, if you’re offered an extremely advantageous return rate at no risk, you have every right to be skeptical about this opportunity as well as the adviser who is trying to sell it to you. If being successful at investing in stocks and funds was that simple everybody would do it and we would all be as rich as Warren Buffett.

Are you an experienced investor? Do you have a recommendation we may have forgotten?

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