Investment scams are becoming more commonplace as fraudsters take advantage of the naivete of new investors to make money. However, they are easy to spot. Below are some red flags you should look out for to avoid falling victim to one:
- Guaranteed returns at no risk
While investments can be grouped as low, medium or high-risk, no investment is 100% risk free. Therefore, you should be wary of sinking your capital in a venture that guarantees a lucrative rate of return with zero risk. Question how the product can generate such high profits with low or no risk. Moreover, compare the returns being promised with competing products in the market and their level of risk. It is nearly impossible that the investment you are being offered will yield the same returns without a similar risk exposure.
- Clone scams
A clone scam is a tactic con artists apply. Basically, they piggyback on a legitimate existing product to lure in unsuspecting investors. They will use similar names, branding and product features as existing investment products, but promise high and quick returns. The best way to avoid being taken in by such scams is to do your due diligence first. Only rely on information released through an investment firm’s official channels, such as their website and official social media pages. Visit their offices to get the correct information, if necessary.
- Pressure tactics
Scam investments usually apply pressure tactics to try to rush you into committing your money without thinking. These include limited time offers and special rates for immediate investors, among others. Before investing in any product, ensure you understand it completely. How is it able to earn you the return it is promising? What are the underlying assets? What are the risks? Do not invest until you understand sufficiently.
- No verifiable track record
If you are unable to independently verify the information given to you by an investment firm about its track record as well as the product you are considering investing in, you should probably steer clear. Always do your homework before investing anywhere. This includes verifying claims made by a company through an independent third party, such as the Capital Markets Authority.
- Is the product regulated?
While there are some legitimate investment products that are not regulated by the CMA, it can be hard to distinguish between them and scams. For this reason, it is always a good idea to invest in regulated products. This adds a layer of security to your investments since you are assured that the company is compliant with regulations put in place to protect your interests.
In conclusion, many investment scams capitalize on the human weakness of wanting fast and easy returns. However, any legitimate investor will tell you that there are no shortcuts. Fruitful investing takes time and strategy. To find out more on how to make worthwhile investments, contact clientservices@sib.co.ke