Making Investments Based On Emotions Is Risky – Here’s Why?

Most of us have been, or know people who have been a victim of investing frauds. There is a simple trick to save yourself from these investments scams – keep your emotions in check.

Today, I am here with a list of investments scams that exploit our emotions along with ways how you can avoid being caught off guard.

1.)  Affinity Fraud

Fraudsters target members of an identifiable group, based on things such as race, age or religion. The inherent trust within the group is exploited. The attack is most often manifested with the help of the group’s leader. The leaders act as pawns in their plot by manipulating members of the community in order to get them to invest in the schemes.


Trait Exploited – Personal Relations

Affinity fraud involves the exploitation of trust and friendship which is developed over time. They develop a false sense of closeness by citing some incidents and then propose schemes with high returns. The focus of the fraudsters is to penetrate the group and develop close relations with an influential member. The participation of one member is enough to lure the entire group.

How to avoid?

It shouldn’t matter how close you are to a person. You must always do a thorough research on the company/scheme if you are planning to invest in it.

2.)  Internet Investing

To pull this off, fraudsters send you emails from authoritative positions at a renowned financial institution, say, a famous private bank, suggesting that you should invest in a new policy or transfer all your funds to a new account. The moment you agree, they will flee with the money!


Trait Exploited – Use of authority

The mail that you receive will be in such a formal and authoritative tone that it might be hard to comprehend it isn’t from the organization itself. So, you let down your guard and tend to comply with their suggestions, thus being duped.

How to avoid?

Don’t ever respond to unsolicited emails, no matter how professional or authoritative the mail seems. Make sure to contact the financial organization on their registered number before transferring any funds in response to such emails.

3.)  Pump and Dump

Pump and dump is a scheme wherein the fraudsters push the price of a certain stock through recommendations based on misleading and exaggerated statements. This increase in the stock’s price attracts investors. Once the share hits the peak, the fraudsters sell their shares at these high prices, gaining a huge profit. Immediately after, they will stop the hyping which causes the prices to fall, thus, causing a huge loss to the investors.


Trait Exploited – Scarcity

Investors in the stock market are afraid to lose an opportunity to invest in a profitable stock. Fraudsters exploit this fear and pressurize the investors to buy the stocks.

How to avoid?

You must try to learn about the reason for the sudden rise in the price. You should invest only after you are sure that the rise is genuine.

4.)  Misselling Products

Misselling products is a sales practice wherein the seller conveys the wrong information about the product to ensure the sale and gain benefits. For example, bank employees may convince customers to invest in a policy not suitable for them, just so that they can hog onto the commission they reap from it.


Trait Exploited – Visceral Triggers

The fraudsters exploit the consumers’ instincts of greed to invest in a high return scheme.

How to avoid?

Do not make financial decisions based on the advice of people who are not experts in the field. Do your own research or reach out to an expert financial planner. Initially, it might charge you a fee but the returns will be worth it.

5.)  Ponzi or Pyramid schemes

Ponzi schemes are ones that offer a high rate of return on investments with almost no risk involved. They pay the initial investors by acquiring money from new ones to prove that they are delivering on their promise.


Trait exploited- Societal Pressure

It exploits our mentality of following the herd. Seeing other people enjoy high returns compels us to invest in the schemes. 

How to avoid?

Try to look out for any tangible product that is generating an income for the agency. If you find none, take a step back. Easy money is a myth.

6.)  Mortgage Fraud

This generally occurs when a buyer looking for a house borrows money from an investor who is expecting higher returns. As there is no paperwork involved, investors can be easily duped.


Trait Exploited – Ignorance

Blind faith in the buyer or the mediator is a huge cause of this fraud. Also, for an investor who has been in business for quite some time, the overconfidence takes a toll and he doesn’t find it necessary to do a research about the buyer which ultimately leads him to the final fall.

How to avoid?

Before Investments Make sure all the necessary paperwork is demanded that can be displayed as a guarantee of the money invested. Do not trust the buyer blindly irrespective of the relation that you share with him/her personally.

Most of the above Investments scams can be avoided if we can skip the ignorance and (extra) greed. And ofcourse, Always, I repeat, ALWAYS conduct a research on the buyer, the scheme, and everything else!

Also Read: 8 Business Ideas To Make Easy Money And Help The Society

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