Monday, May 28, 2007

How to Spot a Crook

When someone approaches you about making an investment, you have to consider whether you're dealing with a dishonest person. You know the stereotype of a crook: shifty eyes, nervous snicker, sweaty hands, weak handshake, won’t look you in the eye. You’ve seen it in cartoons and movies. You’ve even met some people like this. But were they truly dishonest? Or were they just insecure?

Was every charming, engaging, and witty person you ever met truthful? Let’s disregard the jerks that didn’t call you the next morning. How about the person who promised you a job or promotion that you didn’t get?

You can’t tell by appearances if a person is honest. The annals of law enforcement agencies and financial regulators are filled with the names of charming, engaging people who turned out to be thoroughly crooked. Indeed, many of the most outrageous fraudsters are exactly the sort of person you’d like to have a drink with. The fact that they were so engaging and likeable is precisely why they were such successful con artists.

That’s why you have to be very careful about whom you entrust with your money. All investing involves giving your money to someone else. You can’t earn interest, dividends or capital gains if you stuff cash into a mattress. The money has to be given to someone else who uses or invests it, and pays you from the earnings they make.

Deal with people and institutions that are familiar. People who are known in the community and need to stay in good standing with their neighbors are more likely to be scrupulous. Look for organizations—whether national or local—that have good reputations. While there’s no guarantee that a person or organization known to you won’t be crooked, you’re taking a bigger risk when dealing with unknowns.

Never give personal information to anyone who calls you out of the blue or sends you an unsolicited e-mail. Be wary of anyone who contacts you, claims to be from the government or from your bank, and asks you to confirm personal information, either by e-mail or on the phone. Legitimate inquiries from the government or your bank won’t come in this manner. If someone contacts you and says you’ve won a prize, don’t pay money to collect the prize. Legitimate prizes won’t require you to pay money.

Invest in an asset, not a person (even if you like the person). Don’t invest in something just because a friend, neighbor, or acquaintance recommends it. Ask yourself whether the asset makes sense for your financial goals. You’ll get a lot of information about why the investment is a good idea. Research it yourself, and make sure you understand how things can go wrong. When you understand the risks as well as the rewards, you’ll be able to make a sound decision.

Celebrity News: If you’ve read enough already about Lindsay Lohan, don’t click on this link.

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