Let’s face it, Aussies love flapping. That’s fine if you want to gamble some extra money on horses, lotto, scratchies, or slots, but it’s another matter if you play with your investment dollars the same way.
The reason scammers go so far with their scams lies in the human foibles of greed and fear. Good con artists will play on both of these emotions to the extreme. For example, they tell you that this investment could earn 20-100% over 6 months, with no mention of downside risk. Downside risk is the industry language for what you have to lose. In the case of CFDs, a fashionable trading instrument similar to options, the risk of loss is tripled, along with the possibility of profit. (I’m not suggesting that CFD trading educators and brokers are shady, but there is a risk that people won’t look at it, for example, in a CFD provider’s advertisement, the fine print says “losses could exceed your initial deposit”).
Spruikers can play on fear by saying you might miss out on growth or have a miserable retirement.
A common practice carried out in Australia is the marketing of overpriced property developments to the unsuspecting investor. There is a notion that ‘bricks and mortar’ is generally safe, but retirees who lost their money on unsecured mortgage obligations will have learned the hard way. Others have lost ground on their investments by selling them a new property above cost.
You just have to look at it this way: if a company is spending a lot on marketing and sales people, where is that money coming from? These days there isn’t as much profit in selling parcels of houses and land on the outskirts of the city due to government duties, so the profit is made by selling at a higher price to the unsuspecting public. Often, the targeted investors do not live near the developing suburb, so they do not have a clear idea of the market price. In the 1990s, thousands of Sydney and Melbourne based investors were tricked into buying new units well above the correct valuation by bogus sellers who would take them to the Gold Coast and control the situation. These ‘messengers’ received a signature payment of $10,000 or more from the developer/vendor. Half of all Gold Coast apartments were overpriced in this way, which is where the term “split property market” originally came from.
Remember, the best way to secure a profit on a property is to buy below market value or buy during a temporary market downturn.
Neil Jenman, Office of Fair Trading, ASIC’s Fido (consumer website), myself and very few others are the lone voices warning good people to stay away from scammers and shady financial schemes. There are many better and safer places to put your hard-earned money, and I cover these asset classes in my book.
I also remind everyone to check who you are investing in and what you are investing in, as these are the two most critical factors affecting the safety of your capital.
