Tips To Sidestep Investment Scams
Fraudulent investment schemes with amazing yields tend to thrive when times are tough. Unfortunately people are easily convinced when they are offered investments with unusually high returns, despite market conditions.
Marelize Smit, Head of Quants at Sygnia Asset Management, tells how she was offered an investment opportunity which promised a return of over 20% annually.
“I was sceptical about the high level of returns and decided not to invest, although it was offered by someone in our extended circle of friends. Today, I am relieved that I decided against it. I would have lost a lot of money and the company which offered the investment doesn’t even exist anymore,” she says.
Smit warns that all investments carry some kind of risk and usually the higher the risk, the higher the return. She believes warning lights should go on if someone offers you a product which they say is low-risk, but it guarantees a high return.
No investment can guarantee a certain growth level and all have a degree of risk. The closest to guaranteed savings are low-risk funds that aim to preserve capital, but they will not offer or guarantee exceptionally high returns.
Even if a close friend has invested in the product it doesn’t necessarily mean it’s a good investment.
“Many people trust investment products because they trust the people who told them about it. They even believe that the extraordinarily high returns are possible just because their friends or family members invest in it. You can trust your friend, but you don’t have to trust the investment.”
Furthermore, if the investment shows continuous upward growth at high levels, regardless of market conditions, you should be wary.
“Although it may seem like an easy way to make money, there is no such thing as getting rich quickly, unless of course you win the lottery!”
Smit believes every investment opportunity should be double checked. Especially as fraudsters use clever marketing techniques and can be very convincing.
“Rather ask an independent advisor for a second opinion. If you are still unsure, ask for a third opinion or rather let it be than lose your savings,” she suggests.
Smit recommends the following check-list to stay financially safe:
- Never put all your eggs in one basket. If you do decide to go ahead with the investment, diversify your funds. If one investment does not deliver as expected, you have the other as a back-up.
- Verify the legitimacy of the product and the company. The company must be registered with the Financial Services Board (FSB) to ensure it meets the requirements of the law. Consumers can also check the status of brokers and advisers with the FSB.
- Ask the broker or adviser for compliance certification. Brokers and advisers are licensed according to their qualifications and experience for the type of service they offer and products they may sell.
- Check if the return is market-related. Compare the returns on the product being offered with what’s generally available in the market.
- Ask questions, even if you feel it sounds silly. Rather ask those questions than lose your retirement savings. The internet is also a powerful tool to learn more about investments and do research. Most institutions’ websites provide information on the asset classes they invest in (shares, bonds, cash or property for instance), their performance and fees.
- Be wary if someone wants to invest your money into something you don’t understand. Especially when they tell you to leave everything in their hands. Understand the investment product and ask for regular written reports.