The National Association of Securities Dealers (NASD) provides some insights into some of the basic ways someone will try to manipulate you. They provide the following examples of tactics:
The "Phantom Riches" tactic dangles the prospect of wealth, enticing you with something you want but can't have. Example: "These gas wells are guaranteed to produce $6,800 a month in income."
The "Source Credibility" tactic tries to build credibility by claiming to be with a reputable firm or to have a special credential or experience. Example: "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."
The "Social Consensus" tactic leads you to believe that other savvy investors have already invested. Example: "This is how ___ got his start. I know it's a lot of money, but I'm in—and so are my mom and half her church—and it's worth every dime."
The "Reciprocity" tactic offers to do a small favor for you in return for a big favor. Example: "I'll give you a break on my commission if you buy now—half off."
The "Scarcity" tactic creates a false sense of urgency by claiming limited supply. Example: "There are only two units left, so I'd sign today if I were you."
If you are skeptical about an investment, asking questions is a great way to help you assess the situation. Ask if the investment company is registered with the NASD (National Association of Securities Dealers) and/or the SEC (Securities and Exchange Commission) and then verify this on these agencies' Web sites. Ask for some time to consult someone else. Tell them you will contact them to follow up.
Additional information can be found at "Fraud Fighting 101: Smart Tips for Older Investors" on the NASD Web site at www.nasd.com/InvestorInformation/InvestorProtection/NASDW_019140.
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