If you’re looking to grow your wealth and achieve financial freedom, investing is a practical way to get there. While investments may seem intimidating and laden with jargon to beginners, nowadays there are plenty of resources and qualified advisors out there to help get you started.
Most financial gurus will advise that newcomers to investing start with a relatively accessible product, such as a mutual fund, a Variable Universal Life (VUL) Insurance Plan, or a Unit Investment Trust Fund (UITF). These types of investments will allow you to grow your money steadily without having to micromanage your assets. You can then eventually branch out into more traditional securities like stocks and bonds as you gain experience and confidence.
Unfortunately, the growing accessibility of the investing world has also opened the door to scammers looking to take advantage of novice investors. Such people usually work by luring in unsuspecting newbies with promises of enticing but ultimately fake investment prospects. Thus, as you begin your own investing journey, it’s important that you know how to tell the difference between scams and legitimate opportunities. Here are a few red flags that show you’re dealing with an investment scam:
ROIs Are Generous and Touted as Risk-Free
The promise of easy money is one of the most common ways scammers try to lure in beginning investors. If someone promises you high returns with little to no risk or effort, like an investment that will allegedly double your money in just a few weeks, you’re probably getting scammed. Remember that at its core, investing is a process of managing risk, and no worthwhile investment is risk-free.
Company Changes Its Name Abruptly
Say an agent of a particular company offers you an investment opportunity. Then, after a few months, you discover that the company has changed its name to something else, purportedly for “relocation purposes.” In these cases, you’re most probably dealing with a scam. After all, a company’s name is an integral part of its brand and public image. It’s safe to assume that no reputable, credible company will change its name that quickly and easily, as there’s no practical benefit to doing so.
Company Doesn’t Have a Physical Office
Be wary of investment agents who constantly ask to meet at coffee shops and restaurants because their company has no physical headquarters. The same goes for companies that perform transactions exclusively through social media and other online platforms. Such organizations will be harder to investigate and track down in the event that they make off with your money.
You Can’t Find the Company Online
Putting money down on an investment opportunity without researching the company behind it first is one of the most dangerous things you can do as a novice investor. Look up every company you’re considering dealing with online, and be wary of firms with a limited or even nonexistent online presence. You’re safest dealing with companies that are registered with the Philippine Investment Funds Association (PIFA) or those cleared by a trustworthy financial advisor. Considering that your hard-earned money is at stake, there’s no such thing as being too careful.
Company Employs Networking Schemes
One common type of fraud that you should be especially wary of is the pyramid scheme, a scam that encourages investors to bring in new recruits. The way these networking schemes usually work involves agents luring people in with fabricated testimonials. Once the potential recruit is convinced, the agent collects an entrance fee that typically ranges from PHP 10,000 to PHP 50,000. The recruit is then promised a generous return on their initial investment—up to double the upfront amount—if they’re able to convince a certain number of new people to invest in the business in turn.
While not all networking schemes are necessarily scams, the pyramid scheme is such a widespread fraudulent business model nowadays that it’s better to be safe than sorry. Research any offers you receive thoroughly before handing over any money.
Investment Plans Are Difficult to Understand
A legitimate investment company will make it easy for you to assess their financial condition and compatibility with your desired investing strategy. It shouldn’t be difficult, for instance, for you to get a financial statement or a prospectus from a company you’re thinking of investing in if you need one. Fraudulent companies, on the other hand, will attempt to confuse you with lengthy, complicated investment plans overloaded with technical jargon. If you go over an offered plan carefully and still don’t understand how you can expect to earn from your investments, you’re best off leaving it.
Agents Try to Rush You into Investing
Some fraudulent investment dealers will attempt to pressure you into investing with special limited-time offers couched in urgent language. These people are usually trying to make as much quick cash as they can before leaving the country. Remember, however, that no credible investment opportunity will rush you into parting with your money this way. It’s ultimately best to pass up on any schemes that encourage you to act quickly without investigating them first.
A little skepticism can save your life when it comes to building your finances, so you’ll always want to avoid investment schemes that promise to make you rich overnight. Focus instead on learning how to manage risk and building your portfolio over time, and you’ll see fruitful returns eventually.