As people around the world struggle with rapidly rising inflation and energy costs, people are eager to find new ways to earn and raise money.
For some, it’s about achieving financial goals, like getting rich, if not impossible. For others, it is a means of survival. Unfortunately, scammers are well aware of that bias and are more than happy to take advantage of it.
Read: Tips to avoid being scammed when investing in cryptocurrency
In fact, in the UK, reports of investment scams have increased 193% in the last five years. Although it is difficult to obtain similar figures for South Africa, the high number of high-profile cases of investment fraud in the country suggests that it is also a serious problem here. And thanks to the advancement of technology, it’s easier for scammers to identify and lure victims.
Unfortunately, the world is full of scams. But with a little knowledge, investors can go a long way to ensure they don’t fall for those scams.
Here are five steps investors can take to help protect themselves from investment scams:
1. Do your research and stick to what you understand
Whether they work online or in person, scammers often promise amazing returns. In many cases, they will present themselves as the beneficiaries of those returns, posting pictures on social media of themselves driving exotic cars, flying on private jets, and live in houses. But they often lie.
If you do a little research it will quickly become apparent that the claims of these scammers have little value. Although entering the product name with ‘scam’ into Google doesn’t always produce accurate results, it’s a good place to start.
It’s also important to note that investors are less likely to complain if they avoid investments they don’t understand. It’s a guiding principle for Warren Buffett and there’s no reason it shouldn’t be for you.
2. Verify, verify, and verify again
Even if your research doesn’t raise any red flags, you should take steps to ensure that the people you trust with your money are legitimate investors.
In South Africa, if the platform is eligible, it must be licensed by the Financial Services Conduct Authority (FSCA) and must display its FSP (Financial Service Provider) number on all transactions. If they are international sites, they should be like the countries they serve.
3. Look for red flags
The saying, ‘if it sounds too good to be true, it probably is’ is as relevant as ever. Watch for red flags like promises of out-of-pocket returns and guarantees that you’ll get money soon.
Another red flag to watch for is if you’re being pressured to sign up for a quick investment. If this is a valuable asset now, it will be worth it in two weeks, a month, or however long you are comfortable with it.
Also beware of non-investment grade offers. If an investment is really good, the people behind it don’t need to approach ordinary members of the public through their emails. The demand is there.
4. Understand the problem
In the investment sector, high returns often require a willingness to take a high level of risk. In venture capital (VC), for example, investors expect that 25% to 30% of the startups they invest in will fail with a 30% to 40% breaking even, and a smaller make quick and big returns. They know this and spread their money accordingly, reducing the overall risk.
Once you understand the problem, it becomes easier to see if someone is cheating on you. If they promise big returns without realizing that there are serious issues, then you should avoid them at all costs.
5. Don’t spend more than you want to spend
In fact, some scammers guarantee that if you practice too much care, you will end up falling for them. But you can buy yourself a significant margin of safety by not including more than you’re willing to write in full.
During the Gamestop saga at the height of the crypto bubble, people took out loans, repossessed their homes, and cashed in their pensions in the hopes of bringing it back out. Although many people invest in the right platforms, they suffer a lot when things fail. If they were a little more careful, the money would have been lost but their lives would not have really changed. The same is true for victims of scammers.
Stick with solid sites with strong track records.
Now that you’ve got a guide to staying safe from online investment scammers, how do you make sure you get the highest returns on your investments?
It’s really easy
Follow people who have strong track records on trusted platforms that are supported by the platforms themselves. Doing what they do doesn’t guarantee that you’ll get the same returns, but it’s safer than putting your trust and money into an investment vehicle that appears out of nowhere. .
Heloise Greeff is the Managing Director of Greeff Invest.
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