Joe and Alice had known Ernest for years. But when Ernest offered Joe the chance to make guaranteed big money, at no risk at all, Joe wasn't sure. Several of their friends had already made some money, and they all said that Ernest made it so easy. So Joe and Alice used more than half of their life savings and wrote a check to Ernest. Sadly, it didn't take long for their money to disappear.

Have you ever gotten a "great offer" or a "hot tip" on an investment? It might come from someone you know, someone you're related to-or it might just be a phone call you get out of the blue, an e-mail, or a pop-up ad online.

The offers can be tempting. Maybe it's getting in on the ground floor of the next big box office hit. It could be a complex-sounding international monetary exchange deal. Maybe it's about an annuity, an oil lease, or even some rare coins that are sure to grow in value.

Before you hand over your hard-earned money, do your homework. Brush up on the warning signs that you should watch out for, and follow some steps before you invest.

Warning Signs

Investment scams can take many shapes-and they'll be really tempting. Whatever the scam, scammers use some of the same tactics to get you hooked. Listen for phrases like these. When you hear any of these pitches, heed the warning that you're looking at a scam:

• "Your profit is guaranteed."
• "It's an amazingly high rate of return."
• "There's no risk."
• "You can get in on the ground floor."
• "You would be a fool to pass this by."
• "This offer is only available today."
• "I'll get you the paperwork later."
• "Just make your check out to me."

These lines are tricks of the trade for scammers. Even if you know that there are no guarantees in life–much less in investing–scammers use these lines and promises everyday to convince unsuspecting investors to part with their money.

It's their business to convince you to part with your money. These lines help them do it. If you hear any of these lines, or feel pressured, STOP! Take your time and check it out. A good deal (that's a real deal, not a scam) will still be there. And, most important, remember that if a deal sounds too good to be true, it probably is!

Check Before You Invest

No matter what that "great opportunity" is–or who offers it to you–there are steps you should take before you invest your money. It doesn't matter whether the offer comes from a financial professional, a pop-up ad, your brother-in-law, a stranger on the phone, a friend, the nice young man at your church, or anyone else. The steps are the same.

Here's what you'll want to check before you part with your money:

• Check the product. Most investments are securities and must be registered with your state securities regulator or with the Securities and Exchange Commission (SEC). If your potential investment is not, you won't want to invest. And, is it the right kind of investment for you in terms of the level or risk, access to your funds, and length of time before you will see a return?
• Check the person. Is the person selling you this investment licensed in your state or with the SEC? If not, beware. You can get contact information for your state regulator from the North American Securities Adminstrators Association. The SEC has more information on how to check out investment brokers or advisors.

Once you check with your state securities regulator or the SEC, you can decide if the investment (if it really is an investment) is the right one for you.

AARP's Money Matters Tip Sheet on Signs of a Scam has more information and action steps.