Answers for Test Your Investment IQ

Coins. Test your investment IQ.These are the answers for the 'Test Your Investment IQ' test and their reasons. Hope you get all the answers right .

  1. RISKY. Even before they have sold the first share of stock, scam artists tell investors that only a few shares are left. But high-pressure sales tactics always mean high-risk investments, and investing thousands of dollars overnight is high risk. Do not let any promoters fool you by equating their ventures with those of large corporations. The only track record that matters has to do with the specific venture you are considering.

  2. RISKY. Anyone can rent luxury office space - even fraudulent promoters. But it is more likely that they have a "mail drop" at a luxurious address - a rented box for receiving mail that is forwarded to another location. In fact, each of the “offices” may be a mail drop, an apartment, or even a boiler room (pheww). As for glossy promotional materials, they are essential tools of the trade. Scam artists know that these materials may be your main source of information; they are willing to spend money to lend credibility and sophistication.

  3. RISKY. Before you rely on an insurance or bonding company, use independent resources to verify that: the insurance or bonding company exists; the policy exists; the insurance or bonding company has the assets to pay the investors; and the investors are the beneficiaries of the policy, not the promoters. Verifying a successful history of under-writing investments is the only way to make this information useful.

  4. RISKY. The people you talked with may be "singers" paid by the company to give a good recommendation. Even if references are investors and exactly who they say they are, a promoter may be paying them special "dividends" - to induce them into giving positive references.

  5. RISKY. High returns carry a high degree of risk. A salesman who does not disclose this is being dishonest. Even investing in the stock market is risky: The market can turn down.

  6. RISKY. Get profit projections in writing. Ask for evidence of the promoter's profit projections and try to confirm them with independent sources. If written materials say you could lose all your money, believe it. Investing is risky. If the talk is rosy but the written materials paint an ominous picture of the risk, trying to recover any money you’ve invested could be difficult.

  7. RISKY. Just because no complaints have been lodged against a company does not mean it is a bona fide operation. Even information in local business papers could come from the promoter’s press release. Find an independent source or an expert you trust for information on the company's track record. Otherwise, consider the company an unknown and high-risk investment.

  8. RISKY. General partnerships often impose risks on the partners as individuals. Scam artists often structure investments as general partnerships as a way to avoid securities regulation. But some partnerships may be securities and subject to regulation despite a promoter's claim. In addition, a partnership may be debt-free because it has no business history or assets. The reason a large corporation enters only a "top" market may be that it is the only place entrepreneurs are likely to make a profit.

  9. RISKY. No government agency reviews investments for self-directed IRAs. To see if you face tax consequences for using your IRA money on a venture, have an independent tax consultant check any potential investments. Don’t be impressed by IRA trustees with large holdings and accounts. The Securities and Exchange Commission sued one IRA promoter in 1996 who allegedly transferred more than $270 million from more than 14,500 consumers’ IRA accounts to fraudulent telemarketers and unregistered securities promoters. Do your homework!

  10. RISKY. Once you invest, you should receive an accounting of your funds from independent sources as a matter of routine. Otherwise, you have no guarantees that your money is being used as you were told. Fraudulent promoters often hide costs in their charts. "Marketing costs" may mean the telemarketing costs of selling investments to people like you. The principals behind the venture may call themselves "consultants" and take a share of your investment as their salary. These deceptions and the promoter's commission alone could cost you a significant portion of your investment. Even your partnership's "asset" may not really cost $5 million. That may be the price the scam artist is charging your partnership to "acquire" an asset that's really worthless.
So what is your score? Don't fall to any fraud or scam anymore.

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