P.T. Barnum was right. There is a sucker born every minute. There seems to be an endless supply of greedy people who can be duped into participating in some kind of crime as a way to make easy money. The suckers are willing to believe they have stumbled onto some great fortune by having the opportunity to participate in a hush-hush opportunity for quick and easy money. People with a low self esteem are easy marks for the hustlers who flatter them. True believers buy into deals offered by con artists who masquerade as "brothers", as fellow born again Christians or as supporters of some common cause. Those who are angry at government are easy pickin's for the hustler who offers them a way to stop paying taxes.

For those who are prone to being the meal tickets of the hustlers of the world, these common sense tips will most likely be like water falling over a teflon surface. They won't stick. But perhaps there will be a few people who might be "on the fence" regarding some enticing opportunity and these tips may help them to see that an "opportunity" is either a scam or it should be carefully investigated. 

A lot of the suggestions that follow can be summed up in one caveat. "Take your time."  The con artist and the hustler is nearly always in a hurry. They want your money now, not in a year or two. 
 
 

Turn Your Back on Mouth Watering Easy Profits

It's been said that you can't con an honest person. An honest person is someone who doesn't expect to get something for nothing or even to get a huge profit for a small effort. Whenever anyone appeals to your greed to make some easy money with claims of no risk, that should ring loud alarm bells in your head. 

The best real opportunities are those that require hard work, significant risk and a lot of time to develop. Easy money, quick money or a way to get away with some "innocent' scheme against the government or an insurance company are all signs of a con.

If you become a "victim" of a con that involves a crime against some government, a large corporation or even an industry (like the insurance industry), you will fully deserve the losses you will sustain. 
 
 

What's a Reasonable Return on Investment?

During periods of low inflation, when interest rates are also low, a lot of retirees are easy marks for those who make preposterous claims of high rates of return on some kind of investment. If you were to study the movement of interest rates in relation to inflation rates over a period of a hundred years, you would discover that when inflation rates are near to zero, interest rates are greatly reduced. 

Without inflation, long term government bonds (over ten years) will yield about 1.5% to 2% per year. Bank savings accounts and money market funds will offer similar rates. Most corporate bonds will yield 1/2% to 1% higher depending on the quality of the bonds. Tax exempt state and municipal bonds will offer rates that may even be a 1/2% lower. The interest rate on quality residential mortgage loans will be from 3.5% to 4% during periods of very low or zero inflation. During periods of very low inflation, the stock market usually does very well -- with average returns of from 6% to 10% per year -- but those rates of return are averages and some stocks won't do that well. Utility stocks may offer returns of about 4% to 5% a year during periods of low inflation. 

Large corporations rarely make as much profit as many people seem to think they do. An after tax return on investment for a mature publicly held corporation is likely to range from 5% to 10% a year. Any business that makes more than 10% a year on its invested capital will soon begin to attract competition. Credit card companies may charge up to 20% a year for interest on unpaid account balances, but they also have a lot of losses. That 20% is their gross income, not their net income after taxes. 

Based on these averages as benchmarks, it's hard to understand why anyone would seriously expect to make a return of 10% or more per month on any kind of investment! Yet people will invest in schemes that promise returns of 50% a month and will argue that there is nothing wrong with this "investment". But if pressed, few of them ever get to see any spendable cash because their "returns" are always reinvested. In many cases, they are constantly encouraged to put more money into their extremely "profitable" investment. 

Any investment that requires little or no time and effort and that offers returns far in excess of what the large corporations are able to make is highly suspect and should be approached with great caution and care. 
 
 

Run for an Exit if You Have To Decide in  Hurry

A con artist is always in a hurry. These are people who don't have the patience to work for an honest living. Many con artists are very bright, and very charming. They could make a good living doing something that is useful to other people. But a lot of hustlers do what they do for the risk and the ego gratification of being able to outsmart others. As Joe Henderson put, it

"The thing about a con man is, he'd rather make a little money dishonestly than make a lot of money doing honest work." (Rips-Offs, Cons & Swindles, M. Henderson)

The swindler wants you to make a decision NOW and to write a check or get some cash from the bank -- all for a very plausible reason. After all, if the reason for the urgency isn't persuasive, the con won't work. If it's a con, you will be pressured to make an immediate decision. 

If there is a genuine opportunity that requires fast action, here's a rule of thumb. If you discover the opportunity, take your best shot. If someone else discovers it and wants to give you a "piece of the action", take your time and check it out. Don't do anything in a hurry unless it's something about which you are a genuine expert and you don't need anyone else to tell what to do or when to do it. 
 
 

Hang up the Phone if They Won't Put in in Writing

Nearly every kind of con can be killed by insisting that it be put in writing with the help of an independent lawyer. An independent lawyer is one who is only beholden to you and who doesn't even know the party who trying to offer you some kind of opportunity. The mere suggestion of using your own lawyer is certain to generate a host of reasons why there isn't enough time, why the deal must be kept a secret, why it will save time and money to use their lawyer who is already familiar with the deal, etc. etc. 
 
 

This "Opportunity" May Be A Partnership

If you are involved with anyone else in an effort to make some money, you are probably involved in a partnership. 

Technically, any kind of business or investment venture between two or more people for the purpose of making a profit (whether legal or not) is a partnership. It's not required by law for a partnership to have a partnership agreement in writing. But it's extremely important to have a clear, written agreement between all the parties involved as to who will invest how much and when, how the profits will be divided, how the losses will be divided, how the assets will be divided if the partnership doesn't work out, and a variety of other issues such as who will take care of the money.

In addition, a partnership is required to file an annual Form 1065 with the IRS to report the income and assets of the partnership, plus the name, address and social security number of each partner.

You have every reason to insist that you and the people who are trying to encourage you to participate in their opportunity should have a written partnership agreement and that you should choose the lawyer.
 
 

Ask for References and Check Them Out

If you haven't known someone for at least five years or haven't had any social or business contact with them previously, you have every reason to insist on getting complete information about them and on getting references. What you really want is their name, address and phone number. If you can get a drivers license number that will help. Then contact a lawyer or private investigator and check them out. If they object because they are insulted that you don't trust them, ask yourself why you should trust them. Trust is earned through time and relationships. It's not something you can acquire just by joining a club or a church or because of a common ethnic background. 

Hustlers and can artists have a talent for gettiing people to trust them in a very short time. Without that talent, they would not be able to prosper in their illicit trade. The flip side of that issue is that if you feel some relative stranger is someone you can trust completely, and if this person is offering you an opportunity to make a lot of money, with limited risk, there's a good chance this new person in your life is setting you up for some kind of a sting. 
 
 

If you Have to Commit a Crime, It's Sure to be a Scam

For decades, some Nigerians have been promoting a scam that seeks to recruit the help of someone to commit a crime against the government of Nigeria. The mark (potential victim) receives a letter from someone in Nigeria claiming to be an official of some kind who has stumbled onto a huge amount of money ($20 million or more) that is only available to be used to purchase certain kinds of goods from foreign vendors. They entice you to pretend to be such a vendor and they offer to share the loot with you. If you fall for the scam, they will ask you to put up some earnest money (for some plausible reason) or they will ask you to travel to Nigeria -- with some money. Either way, they get the money and you get nothing. You are not likely to complain either because you were part of a conspiracy to commit a crime against the government of Nigeria. 

In a similar vein, some promoters in the Bahamas convinced a medical doctor that he could make some tax free money by putting it into a Bahamas corporation which they would manage on his behalf. Within six months, they had consumed most of the money in his corporation on various expenses. When he complained, they threatened to turn him into the U.S. IRS for tax evasion. 

Any plan or arrangement that requires secrecy or that seeks to take advantage of some large and impersonal institution -- like the government, an insurance company or some other large company -- is highly likely to be a crime. However the scheme is promoted, you will be required to put up some "good faith" money -- or to invest a share of the total -- but the hustlers will have control of the money. 
 
 

Does this "Opportunity" Really Make Sense?

Every business and investment is a gamble of sorts. More accurately, it's a calculated risk on the part of the entrepreneur or the investor. Based on a knowledge of the business or the market segment, the serious investor and the serious entrepreneur conclude that the potential payoff is significantly greater than the potential loss. 

Life is full of real opportunities. Clever and hard working entrepreneurs turn such opportunities into profitable businesses. Clever and hard working investment speculators sometimes make large profits from such opportunities -- but they often have large losses as well. Sometime a doctor, lawyer or other high income professional will gamble a small amount of money on a new business venture with someone who is a close friend or relative and will make a huge amount of money. On average, it's likely that for every time this happens, there are another 999 investors who lose their stake in some promising new venture. 

At best, these business ventures are based on some sensible and plausible business plan to take advantage of some new product or some kind of gap in the marketplace. At worst, they are the product of a market frenzy (also known as "bubbles") like the dot-com bubble of the late 1990s. 

The famed investor, Warren Buffet, was reputed to have investigated every potential stock investment as if he were going to buy the company. That's not practical for the typical small investor in the stock market, but it's very appropriate for someone who has been presented with a business opportunity. 

A good business opportunity doesn't take advantage of anyone else. A good opportunity provides a benefit to the future customers in the form of a lower price or a new kind of product or service or a better way of delivering the product or service. A good investment is based on putting money into good business opportunities of this kind. 

Anything else should be highly suspect. You might be confronted with a once in a million chance to get in on the ground floor of a great new business, but the odds are 1,000,000 to 1 this opportunity won't fly.

Just as there are a few people who will win the lottery, there will be a few people who will profit from the once in a million opportunity. But everyone else will be a loser. One winner. 999,999 losers. 
 
 

Check it Out; Investigate Before You Invest

Investment opportunities, business opportunities and other kinds of opportunity are likely to cost you money unless you carefully check them out before you invest. This is even more true with offshore opportunities. 

We have written an extensive report on how to investigate offshore investment opportunities and it's on our web site. (Free). It's called "Due Diligence for Offshore Investors". Most of that information is equally useful for checking out a proposed business opportunity. 
 
 

Get an Independent Second or Third Opinion

One of the quickest ways to discourage a hustler is to insist on getting an independent second opinion. The hustler will most likely insist that the deal is some kind of "secret" or that they aren't even supposed to have the information they are sharing with you. Of they may argue that anyone you contact for a second opinion won't understand the deal. Of course, they imply that you understand it -- which is highly flattering. 

With any legitimate business opportunity, the other parties to the deal will want you to get help from your various advisors, such as your lawyer, your tax accountant, your insurance agent or your financial planner. By contrast, a scam artist will do everything possible to keep you from asking for the advice of any profesional advisors. 
 
 

Be Sure Your Backup Advisor is Independent of the Deal

Many years ago, an investor had made a sizable profit from an investment in a company operated by a very close friend. The profit was $5 million and he was faced with having to pay a capital gains tax of $2 million. This was back in the days when tax shelters were still legal. In searching for a way to avoid the tax, he became acquainted with a stock broker who promised him there was a way he could avoid the tax. He needed a lawyer, but had been living out of town, so the broker recommended a lawyer for him. He also needed an accountant and the broker suggested one. He then relied on the lawyer and the accountant to give him an independent opinion about the very complicated tax shelter deal being presented to him by the broker. Should we be surprised that the lawyer and accountant suggested that he proceed with the investment? He did and it cost him $7 million. 

When you get a professional to help you evaluate a proposed business or investment opportunity, make sure the  professional is not in cahoots with the promoter. Do not look to the sales person or the person who is encouraging you to make this investment to provide you with referrals to professionals who can offer independent and objective help. Look elsewhere for professional help. If you need referrals ask business associates, relatives, close friends or long time neighbors for help in finding a professional advisor. 
 
 

When to Get Help from an Expert

Unless a business opportunity involves something about which you are a genuine expert, you will need someone to help you assess the deal. With a real estate deal, you need a real estate expert and a lawyer who has experience in the real estate business as well as a tax accountant with experience in real estate ventures. 

An "expert" is someone who devotes at least half of their working time to one subject and have been doing that for at least three years. If your investment involves banking, get a banking consultant. If it involves oil and gas drilling, get an oil and gas expert. Et., etc. etc. 
 
 

Be Sure Your Advisor is Subject To U.S. Legal Jurisdiction

A lot of people have gotten seriously burned on a variety of offshore scams. Many of those scams involve some element of tax evasion. If you rely entirely on a promoter in a foreign country to inform you about the U.S. tax law, securities law or money laundering laws, don't expect to get a truthful or an accurate answer. (You might, but don't expect it.) 

First of all, the promoter is the person who is going to profit if you accept the offer. So you should not expect that person to say anything that will deter you from buying his program. 

Second, the foreign promoter is not likely to be well informed on U.S. tax, securities or other applicable laws. It's hard enough for U.S. professionals to stay informed on these laws and it's far more difficult for a foreign person to do so. 

But third, and most important, the foreign promoter or advisor is not subject to U.S. legal sanctions for such things as conspiracy to defraud the U.S. government, for attempting to evade money laundering statutes or for U.S. securities law violations. That's why a number of former U.S. promoters have given up their citizenship and are now expatriates. By being free of U.S. legal sanctions, they can encourage U.S. persons to invest in schemes to evade U.S. taxes.

Be sure your advisors are going to be in trouble if you get in trouble. And don't get caught in the kind of trap where the foreign promoter can threaten to turn you in to the U.S. authorities if you persist in bothering them about the mis-management of your money. 
 
 

How to Limit Your Potential Losses

There's no harm in gambling a few bucks on a lottery ticket once in a while or playing the slots with some "extra" money. Sometimes it's not worth the time or the cost to really investigate some "opportunity" and it may be something you'd like to try. If the "opportunity" only requires an investment of pocket change and it's not going to get you into any trouble with the law (for tax evasion or money laundering or some other law), then ask yourself if you could afford to lose this money without causing you to lose any sleep at night. If you can justify the investment as a form of entertainment, then go ahead and have fun with it.

But don't be like the investor who risked his entire $7 million estate in order to invest in a tax shelter to avoid $2 million in taxes. Don't be like the school teacher and single parent who borrowed $20,000 to invest in an oil and gas drilling program or the retired school teacher who put $23,000 of her modest retirement funds into a certificate of deposit with a foreign bank that wasn't actually a bank. 

From an investment perspective, there are two different kinds of goals. One is to protect and preserve your savings for some future use. The other is to use your savings to make as much money as you can. 

The serious investor who seeks to maximize his returns will often follow a theory of investing known as market timing. This theory proposes that different kinds of investments move in cycles at different times. When one type of investment is going up; others are going down. When one type of investment is going down, others are going up. The "trick" is to move out of the falling markets and into the rising markets as quickly as you can. However, even those who claim that this approach is profitable will admit that it requires constant attention, a detailed knowledge of the markets and a huge amount of discipline to stick with a system. This approach to investing is only for those who have the time and the temperament to devote most of their time to the daily study of the markets. 

For those who don't have the time or the inclination to follow the markets that closely (and to take a chance on being wrong), there is another theory of investing that could be called asset diversification. (This approach should not be confused with the concept of asset allocation, which is somewhat similar but which is actually a mixture of two different approaches.) The diversification approach is based on the goal of minimizing losses and of accepting the principle that no one can consistently predict what the markets will do. Asset diversification is also based on the fact that different kinds of investments will go up and down at different times. To minimize losses, a pre-set percentage of assets are allocated to various categories such as cash, debt obligations, equity securities, real estate, natural resources, hard assets and business ventures. (A detailed discussion of this concept and of how to also minimize taxes with this approach is available in our subscribers web site.) Within each category, investments may be further allocated between domestic and foreign or by industry segment or even between mature companies and small companies. Some people avoid the hassle of investing in specific securities and simply invest in a variety of market indexes. But risk averse investors will set a limit on how much they will invest with any one company, with any one group of affiliated companies and in any one kind of asset. That limit is based on how much they can afford to loose without seriously affecting their investment goals. For some people, that limit may be 10% of their assets. For others, it might be 25% or even 33%. 

But whatever the limit, it represents a decision (before investing) not to risk more than that amount or percentage of assets in any one investment opportunity. 
 
 

Financial Planning vs. Hot Tip Investing

Investors who get into the most trouble and lose the most money are those who don't have any kind of financial road map. Investing for them is a hit or miss proposition and investments are usually bought on the basis of "hot tips" gleaned from seminars, newsletters, phone calls from brokers or information found on the Internet. 

Those who get into the least trouble with bad investments are those who have a financial plan -- a goal -- and a road map on how to achieve their goal. A financial plan requires an assessment of where you are (financially) -- which involves a review of your current assets, debts, income and expenses. The next step is to define some kind of goal or a combination of goals. You may want to define a retirement goal in terms of inflation adjusted income amounts. Another goal may be to provide adequate funds to put your children through college or through some kind of trade school. Part of your goal may be to protect your children from having to help you with long term care expenses in your later years by investing in long term care insurance. Part of your goal may be to minimize taxes and you may need some help to find ways to do that. 

Those who have a goal and plan will make investment decisions based on a pre-selected group of investments that fit a structure that has been designed to achieve their goals. They have no interest in hot tips, phone calls from brokers or devious ways to evade taxes. They don't expect to achieve preposterous rates of return without equally  preposterous levels of risk. They are not enticed by promises of quick and easy profits. 

It's like the story of the turtle and the hare. In the long run, the turtle is far more likely to get where he is going because he isn't busy chasing after high risk enticements. 
 

Vernon Jacobs