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SEC Cautions Against Facebook Stock Tips

If you’re using social media to help make decisions regarding investments and retirement finances, place a sign next to your computer: Proceed With Caution.

That’s the message in a new report from the Securities and Exchange Commission and its Office of Investor Education and Advocacy. In a recent Investor Bulletin, the agency notes that growing numbers of older adults are turning to web-based platforms that allow interactive communication – like Facebook, LinkedIn, bulletin boards and chat rooms – to research stocks, discuss the markets and gather news.

The problem: While social media offer a number of benefits, they “also present opportunities for fraudsters targeting older Americans,” the report notes.

With that in mind, the new report – “Social Media and Investing: Tips for Seniors” – discusses common investment scams using social media and the Internet, and urges older investors to watch for the following:

Red flags.  Investment recommendations online may include words like “breakout stock pick,” or carry claims of “guaranteed” returns with “little or no risk.” Such descriptions and phrasings should be a warning to would-be investors. Another red flag: offers to invest outside the U.S. Many con artists set up operations overseas “to make it more difficult for regulators to stop their fraudulent activity and recover their victims’ money,” the SEC notes.

Unsolicited offers. If you see a post or a tweet, or receive an email, with your name – and if you didn’t ask for the communication or don’t know the sender – “exercise extreme caution,” the report states. An unsolicited sales pitch “may be part of a fraudulent investment scheme.”

“Affinity fraud.” Some investment pitches – and scams – can reach you through trusted sources online: a religious community, a professional group. You’re apt to let down your guard if you hear about an offer from such a source – but the group or person making the offer might not know the investment is a scam.

Privacy and security settings. Sure, you enjoy sharing information online with friends and family. But unless you guard your personal information, such details could be available to anyone with access to the Internet, including fraudsters. The point: If you’re using social media as a tool for investing, “be mindful of the various features on these websites that can help protect privacy,” the SEC states.


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    • Using social media as a source of information to buy or sell stocks is sort of like taking advice from your Aunt or Uncle who work in maintenance on the floor of the exchange.

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  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.