How to avoid investment fraud

What does investment fraud mean, and how can you protect yourself against it?

Investment fraud is when a broker abuses his or her authority over your money and uses it for purposes that are not in your best interest. In theory, this isn’t supposed to happen. Brokers are tasked with doing what is best for you and your financial interests. They are supposed to think only of how to maximize your gains and still keep your money secure.

In the real world, this often does not happen. Instead, brokers may push your money into particular stocks or bonds that benefit them or other clients more than you. If they do this without clearly explaining the fact to you, they are committing fraud.

But how do you protect against such things?

The best course to follow if you are trying to be proactive and can afford it is always to diversify. Don’t trust all your money to one broker. Put money aside in several areas, including some in savings, some in bonds, and some in annuities, so that even in the case of extremely poor management, you’ll still have a significant portion of your money left.

The next major point is to educate yourself. Although it may be asking too much to become a financial expert, find out enough to be able to keep up with the terms and the logic of your broker’s decisions. The better you can understand what is happening, the better you can guard against mismanagement.

It’s worth point out that this is only an option if your broker lost your money through fraud or criminal mismanagement. It is entirely possible for a broker to mismanage your funds, lose your money, and to have done nothing wrong in the eyes of the law. Bad investments are possible for anyone to make. Even great investors make them sometimes. If your broker made a few bad choices honestly, you might have a very little case.

However, if your broker either showed purpose in misusing your funds (particularly without your approval) or else showed negligence in how they protected against your losses, you may have a case to make, and may be able to recover something of what is lost.

The financial industry is an incredibly powerful way to make money, and one that all are encouraged to be involved in, but only up to a point. Just as the market can make you a fortune or a comfortable retirement, it can lose those things as well. The better you follow the steps above, the better chance you have of walking away like a prince when you pull your money out, and the better chance you have of avoiding becoming a pauper due to fraud or negligence.

Read More