How to Avoid Investment Scams as a Senior in Canada

If you have some money to spare, you may consider investing it. When doing so, be on the lookout for scams.

Pyramid and Ponzi Schemes

Two of the main investment scams to be on the lookout for are the Pyramid scheme and Ponzi scheme. If you don’t know what those are, you can get a full run-down in videos by One Minute Economics and TED-Ed.

Basically, in a Pyramid scheme the founder charges a membership fee. Those who join as members are paid a certain amount per person when they bring others into the scheme. Those new people pay their fees to the founder, and some of that money goes to the person who brought them in.

The people at the bottom are always losing money until they bring others into the scheme. Pyramid schemes always fall apart eventually when those at the bottom become unhappy and leave.

A Ponzi scheme is very similar. However, in this setup, the head honcho deals with each investor directly, so the others don’t know about it. Some of the money from new members goes towards paying existing ones, or the existing members will be persuaded to invest more money.

The RCMP says that both Pyramid schemes and Ponzi schemes are illegal in Canada.

Be cautious, because even people you know and trust may invite you to join a Pyramid or Ponzi scheme without knowing it.

These types of schemes are usually hidden behind all sorts of lies. It may be hard to tell if the investment opportunity is legitimate or false, but if you are supposed to encourage friends to join, it is probably a pyramid scheme.

Pension Scams

The Ontario Securities Commission warns about pension scams, forex scams, and pump and dump scams.

Seniors especially should be aware of pension scams. If you have a Locked-In Retirement Account (LIRA), you’ll know that you usually can’t access it until you are 55 or whatever age is specified when you create it. As with just about everything, some taxes come out of money withdrawn from a LIRA.

Advertisements for Registered Retirement Savings Plan (RRSP) loans, promising ways to get around taxes on your LIRA are probably fraudulent.

These types of scams claim that if you sell investments in your LIRA and invest the money in their start-up business instead, they will only keep a portion as a fee and give you back the rest. They also say you will have a valuable investment in their company, but you may lose all the money you give them.

Forex Scams

Forex is a short form for foreign exchange. Forex ads make it seem like it will be easy and profitable to trade foreign currencies, hoping their value goes up.

There are several problems with this situation. For one thing, the forex market is dominated by professionals working for banks. Competition with these financial institutions makes forex trading risky.

You should also be careful because “forex firms” may not be what they claim to be at all. They may not invest your money how you want them to.

If you are asked to transfer your money to an account in another country or wire your money, it’s time to be suspicious because this is likely a scam, and the scammers cannot be easily caught if they are operating outside of the country.

Pump & Dump Scams

Pump and dump scams use the stock market. A person or business will promote a certain stock, getting people to buy shares so the value rises.

They already have a large number of shares, and when the value reaches a peak, they cash in. The value of the stock drops drastically and all the people they convinced to invest lose money.

The Ontario Securities Commission also has a list of four warning signs of an investment scam.

Firstly, if the investment seems low risk and promises high returns, you should be a little suspicious. Remember that if something seems too good to be true, it probably is.

Secondly, if you get insider information, remember the tip may not be all that hot. Scammers can lie about these things easily to convince you to hand over your money.

Thirdly, pressure to invest immediately is never a good sign. This is a tactic scammers use to prey on people’s panic and fear of missing out, hoping that they will make a decision before they discover the scam.

Even if the investment turns out to be legitimate, you should take time to research and consider first.

Last but not least, if you find out that the person or business you are dealing with is not registered to sell investments, do not give them any money. They are trying to scam you.