National Information Centre on
Retirement Investments Inc.

Safety, Risk & Scams
Safety When Investing
When choosing investments, the most important considerations should be safety, time framesand security of the products. While the level of security investors are comfortable with can varyfrom person to person, it is imperative to research thoroughly before making decisions.
An investor must be confident about the organisations through which the investments are madeor, in the case of direct investments, the assets being purchased.
There are five asset classes in which investments can be made. The time the investments shouldusually be held to minimise the probability of financial loss varies with the type of investmentused.
As a general rule the following time frames can be suited to investments with the describedvolatility: · short time frame - (up to 3 years), conservative low volatility investments are suitable (e.g term deposits, bonds, high interest on-line bank accounts); · medium time frame - (3 to 5 years), conservative low volatility investments together with a small amount of growth oriented investments are generally suitable (e.g term deposits, listedproperty trusts, shares in long standing sound public companies); · long time frame - (5 years and longer), a diversified portfolio is more likely to produce a strong result, as the impact of short term fluctuations in value are averaged out. To minimise theprobability of initial costs not being recouped growth investments are generally held for atleast 5 to 7 years (e.g residential property, property trusts, Australian and international shares).
Different investments have characteristics that suit different time frames and individual objectives.
Listed are the main investment sectors (asset classes) and the typical characteristics they carry.
The cash sector comprises products with underlying assets in the fixed interest market andinvestment time frames that are short. They are considered low risk and can produce dependableincome. They have no likelihood of capital growth and potential of capital loss is low. On-callaccounts, cash management accounts/trusts and Bank Bills are typical products in this sector.
Fixed Interest
Within this sector there are a number of investment options, which differ in their yield, securityand flexibility. Commonly, fixed interest is used to provide a higher level of security and a strongincome stream, with little potential for any significant capital growth. Again, the underlyingassets are in the fixed interest market but have a longer duration.
Common options in this sector are government bonds, mortgage trusts, fixed term deposits anddebentures. International fixed interest bonds may also form part of the asset allocation in variousmanaged funds.
The property sector is traditionally considered by many to offer risk averse investors reliablecapital growth over the medium to long term. Despite this often being the case, propertyinvestments can also be subject to volatility and, as a result, capital loss. It can also offer regularincome and can be accessed either directly or via indirect investments such as listed or unlistedproperty trusts. Market and economic conditions can influence performance.
Australian Shares
The Australian share market historically offers opportunity for strong capital growth over themedium to long term. It is, however, volatile and losses can occur if assets have to be sold whenthe market is down.
Investors should be prepared to maintain a long term balanced view in the face of extreme shortterm fluctuations in the market. The market can be accessed directly or via indirect investmentssuch as unit trusts.
International Shares
International shares, like Australian shares offer the opportunity for long term capital growth.
Investing offshore offers greater diversity due to access to larger markets. They can also be highlyvolatile in the short term and are therefore considered a long term investment.
International shares are subject to other risk factors such as currency fluctuations that can affectthe risk/return equation.
Needs and Objectives
Investors should prioritise their needs and objectives so that they can choose investments withcharacteristics that can best achieve them. Needs and objectives that are important to considerand prioritise include: · Protection from the impact of inflation At the end of the day all these objectives should be considered and the investor should becomfortable with their investment decision. To assist in determining if investors are comfortablewith their investments they need to gauge their risk profile and understand the possible risks thatcan affect various investments.
There are many ways to determine a person’s risk profile or investment comfort level. Most aredone by answering a questionnaire that is scored or rated. The questions revolve around what theinvestor wants to achieve from the investment and how comfortable they would be if theinvestment experienced one or more negative returns over the duration of the investment. NICRIhas developed an online risk profiler that can be accessed at
With any investment, there are many different types of risk, not just loss of capital. It is importantto understand how these risks may impact the strategy being considered.
Main investment risks and typical characteristics
Financial Markets Risk:
Markets are volatile and the value of investments may fall as well as rise. All investments (otherthan cash) can decline in value during adverse market conditions. This is particularly the case inthe share and property markets.
For example the Australian stock market has been volatile and over the past twenty years has hadsome significant lows but has outperformed other asset classes over this period. A movement inthe market price of an investment does not necessarily mean the investment is suddenly good orbad.
Liquidity Risk:
Liquidity risk is where the investment may not easily be converted to cash, withdrawn or ‘cashedin’ without loss or penalty when access to the funds is required. For example, a condition of releasemay need to be satisfied to access superannuation, a penalty applied if a fixed term investmentis accessed or shares are required to be sold at a loss to satisfy a cash requirement.
Generally, when dealing with one of the major fund managers, this risk is reduced. However, ifthe investment is with a relatively unknown manager or organisation, further research issuggested before investing.
To minimise the risk of fraud or other illegal activity all paperwork and documentation e.gprospectuses/product disclosure statements should be checked carefully and understood beforebeing signed. Investors should ensure that they receive acknowledgement of investments fromthe organisations concerned within a reasonable time.
Deal only with staff of product providers who hold an Australian Financial Services (AFS) Licenceor are authorised representatives of licensees. Investors can check on an organisation’s licence byvisiting the Australian Securities & Investments Commission’s (ASIC) consumer website,, or by telephoning 1300 300 630. After completing the necessary investigationsa good rule of thumb to follow is ‘if in doubt ask more questions, if still in doubt then don’t invest’.
Special care should be taken when making investments 'on-line'. Often people accept the termsand conditions without reading and understanding them.
Scams, Schemes, Fraud and Dodgy Dealings
Many consumers lose money each year to dodgy investments or ‘get rich quick’ schemes thatpromise everything and deliver nothing. Often, the lure of making a lot of money can cloud aconsumer’s judgement when considering investment opportunities. Scam artists are continuallycoming up with new ways to lure consumers into giving up their money, some reinventing oldscams but having the same result of the consumer losing out.
Careful planning goes into marketing and presenting these scams and they are designed to touchthe emotional desires of consumers. They may offer a ‘free gift’, a ‘one off favour that is availableto no-one else’ or a ‘special discount if bought now’. Documentation can also be presented in afashion that looks legitimate, often with glossy images of luxury cars and homes that seem okayon the surface, but an in depth look may reveal little detail on the investment and who is offeringit. Some scams even offer testimonials given by so-called investors saying how ‘wonderful theinvestment is’ or that ‘they made lots of money’ and would ‘recommend it to anyone’. Again itcomes back to that old saying ‘If it sounds too good to be true it probably is’.
There have been many scams where consumers have lost money such as: · Dodgy lottery schemes – the sale of tickets to lottery schemes that are not registered and
have no prizes (often overseas lotteries); · Gambling systems that guarantee success – these can include a book subscription or
computer programs that promise success in picking winning race horses, lottery numbers orshare prices; · Offers from people claiming to have special or psychic powers – claims that they can offer
wealth, love, happiness or health by paying fees, subscriptions or calling expensive phonenumbers; · Pyramid Schemes – these can operate in a number of ways but the principal idea is that an
operator recruits people who pay a fee or payment of some kind and then they recruit more people who also pay a fee, the majority of which is passed up the line to the original operator.
The more people recruited the more money is made by the operator often with little chance ofanyone else making money; · The offer of free prizes by calling certain phone numbers or attending seminars – prizes
or gifts offered if certain numbers are called or seminars attended, where pressure is appliedto sign up for questionable investments; · Cash payments offered from overseas if certain instructions are followed – when promises
of large amounts of cash are paid to the caller if bank/credit card details and/or payments areprovided (eg; Nigerian Scam); · Requests to update or provide bank account details – letters or emails received asking for
account details or updated financial information; · Bogus charities – requests for donations to charities that do not exist or by people claiming
they are from a legitimate charity but they pocket the donations; · Financial scams – offers to invest in schemes that provide high returns from an unknown
source, often overseas. This can also include emails and letters sent to thousands of consumerssuggesting they buy shares in a company resulting in the share price being pushed up. Theoperator then sells the shares they hold at the higher price leaving investors with shares oflittle value. A common term for this is ‘ramping’; · Potions and lotions – scammers that often prey on the sick and vulnerable offering magic
cures, weight loss, increased vitality or intelligence. Unlike legitimate alternative medicinethere are no results or proof showing that they actually work although they are often marketedas alternative medicine; · Offers to buy shares – Letters sent to shareholders offering to buy their share holdings at
vastly reduced prices. This practice is not illegal but is considered to be morally improper as itis often the elderly or uninformed that agree to sell the shares without researching orunderstanding the consequences. The offer is usually on an official looking document whichadds to the authenticity of it being a genuine offer. It has seen many investors agree to selltheir shares at, in some cases, about 50% or less of the actual value and often with the paymentbeing in instalments over a long period of time. It also means that the investor misses out onfuture gains and dividends.
The examples given are not an exhaustive list.
The most prudent action to take when there is any doubt at all about the investment or purchaseis to not be pressured into anything, don't let emotions override the decision, and be confidentto say no. Even if the offer is genuine, if there is any doubt, it is better to say no at first so theopportunity is taken to understand and be comfortable with the offer before making a decision.
Legitimate financial service providers will not demand an answer immediately.
Some tips to help protect against being a victim of a scam or dodgy scheme
· Ignore and delete emails, letters and chain mail offering lump sum payments or get rich quick
· Take the time to examine the offer carefully and do not commit to anything until fully satisfied with its validity. Check with NICRI, visit ASIC’s FIDO website or contact your state’s Office ofFair Trading if in doubt.
· Ask for identification of people offering an investment or requesting payments or donations.
· Ask for proof that the business or charity is registered and that the person is employed or · Don’t accept testimonials without proof they are real as they can often be made up or dressed · Ask if there is a cooling off period and how easily the investment can be redeemed.
· Don’t accept offers from unknown sources over the phone. Ask how they got your details and refuse to commit to anything as verbal agreements often can be enforced legally.
· Ask for details of all costs, fees and payments that are involved in the offer or request.
· Requests by letter or email for banking details and money (eg. Nigerian Scam) should be ‘The Higher the Return, the Higher the Risk’.
This is an important investment principle. Managing the level of risk is a vital part of investing.
There is no investment without some risk and this includes depositing money in the bank.
Always check potential risks when quoted returns are unusually high.
For more information:
Australian Securities & Investments Commission (ASIC)

Web Address:
Telephone: 1300 300 630
Australian Competition Consumer Commission (ACCC)
Web Address:
Telephone: 1300 302 502
The National Information Centre on Retirement Investments Inc (NICRI) is a free, independent, confidentialservice that aims to improve the quality of investment information provided to individuals who are investingfor retirement or facing redundancy. NICRI works at arms length from both government and the financeindustry to provide a completely unbiased source of information to the public. Funding for this consumerservice is provided by the Department of Families,Housing, Community Services & Indigenous Affairs.
PO Box 893 WODEN ACT 2606, Tel: (02) 6281 5744
Tollfree: 1800 020 110
E-mail: [email protected]
The National Information Centre on Retirement Investments Inc (NICRI) is an independent organisation funded by the Australian Government Department of Families, Housing, Community Services and Indigenous Affairs. NICRI provides a free independent source of investment information for consumers and works at arms length from Government and the This material remains the sole copyright of the National Information Centre on Retirement Investments and may not be reproduced wholly orin part without prior consent. THIS PUBLICATION IS INTENDED AS A GUIDE ONLY AND IS NOT IN ANY WAY AN ENDORSEMENT OF ANY PRODUCT MENTIONED. READERS


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