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Don't Let Affinity Fraud Ruin Your Retirement

Jeff Rose

As you build and invest your retirement savings, you need to keep your eyes open for scams. While there are some legitimate opportunities for you to put your money to work for you, you need to be wary of those with less than good intentions. Make sure you vet all investment opportunities that come your way, including those that come from those you trust.

Someone you know. Even the most vigilant of us can be taken in by a scam if it is presented by someone we know. One of the types of scams growing in frequency is the affinity scam. This scam is insidious because you feel a connection to the perpetrator. An affinity scam occurs when someone whom you identify with asks you to invest, or scams you out of money. In some cases the scammer might claim to be a member of the same church, be part of the same ethnic group, or have gone to the same college.

Because you feel that you and the fraudster have something in common, it's easier to trust him or her. Some affinity scammers even stay in the same area for a while, joining the local book club or civic group. They earn people's trust and then make a pitch. One of the problems, of course, is that you could be asked to tap into your retirement account in order to come up with the capital to take advantage of an investing opportunity.

Pulling your money out of your retirement account to do anything is questionable, since you could incur penalties. There's also the long-term cost of lower returns due to pulling your capital out of the account. When you fall victim to an affinity scam (or any scam) that money will be gone, and the problem is compounded if you've raided your retirement account to participate.

Watch out for fellow dupes. Not all affinity scams are introduced to you by those who mean to take your money. One of the hallmarks of affinity scams is that others can be used to convince you to buy in. Your co-worker or fellow congregant might really think that this is a great opportunity. He or she has invested in the system, is doing well, and wants to help you get insider information. Unfortunately, these folks are often dupes as well. They really think that they are going to help you, and that you will be rich together. At the end, when the true perpetrator gets what he or she needs and absconds with your money, you are all poorer, and you find that the person you trusted was a fellow dupe.

Before you hand over your money, stop and ask yourself why you are interested in becoming involved. If you are interested because you think that the person offering the opportunity is trustworthy and because you have a connection, take a step back. You might be looking at an affinity scam, and it might be best to politely decline.

Jeff Rose is a certified financial planner and U.S. combat veteran. He blogs at Good Financial Cents and Soldier of Finance.

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