You know you gotta invest. That’s how you can achieve financial freedom. But dude, there’s way, WAY too many investment options out there. Some are legit, some are not. How do you know which ones are investment scams?
As someone who reads/works/writes about finance, I like to think that I can make that snap judgement whether an investment opportunity is legit or not. The last thing I want is an ‘investment’ that actually scams me out of my money, you know? In a Lowyat thread I was recently reading, this girl was lamenting her father’s tendency to get sucked into such ‘investments scams’, which resulted in him losing much of his money. Fella’s retired, too 🙁 My heart breaks for this girl.
So I thought, Imma write about what I know about spotting un-legit investments.
Too trusting of friends and families until emotions>facts
Many people get sucked into these investments scams because their friends and families told them about it. Unfortunately, in this case, word of mouth referral is the kicker, and a pretty potent one at that. These types of investment scams tend to rely on plain ol blind faith you put on your friends and family.
It’s tricky, because your friends and family will be in denial mode. They won’t like to be wrong, so they’ll try to convince themselves that they made the right decision and stand by their ‘investments’. They’ll say: “No of course its not scam, it works for me!”
But you still have to make your own research.
Making research is a simple process. Google: ‘investment name’ + scam. If something pops up, avoid.
If you have ever answered a job advertisement or an investment talk that brought you to a ‘seminar’, you’ll know what I mean.
You’ll get vague emails – come here at here. You’ll ask them what it entails. The lady gave some vague replies. You attend, and there’s a freaking stage where person after person hops on and tell the audience how the product/whatever CHANGED THEIR LIVES. #blessed
It’s important to say here that not all of them are scams per se, but they have significantly simplified the process. I’m talking about Herbalife. About Amway. About countless investment methods that is THE ONE (one, I swear to God, uses Chinese Zodiac to predict whether the foreign exchange will go up or down).
No. Going in with the ‘this is easy!’ mentality is not the way to. There’s hard work involved.
Ponzi is an investment that works, but is not sustainable in the long run. Only people early in the game get to make money here. They can be advertised via friends and families, and via seminars too.
Ponzi promises unrealistic returns. Get 30% returns on your investment in one month! But you gotta recruit more people (I mean, where else does that 30% returns would come from).
Ponzi brings me to..
Not all MLMs are Ponzis, but all Ponzis are MLMs. On that point alone you have to be careful.
Bringing up the cult bit again, ooof people get waaaay too absorbed into their MLMs, even if its legit. I admit I have avoided people who talk about it, simply because I ran out of shits to give. Easy! (Not really) Profit! (Well yeah but you have to pay upfront for your ‘starter kits’). Sell products that CONFIRM people want! (More like sell them overpriced slimming products, beauty products, list goes on).
I am not a polite person, when it comes to MLMs. It’s usually mis-advertising at its finest.
Some random, super-niche, time-limited opportunities
One of the weirdest I’ve heard so far is someone offering suitcases full of money that was mysteriously soaked in ink. He offers to sell you millions of dollars worth of the (useless, ink-soaked cash) for reaaally cheap and all you have to do is to buy ‘soap’ that can remove the ink. All you have to do is wash that cash (you read that right) and boom, instant millionaire.
I also read about a cow feed formula that can supposedly make your cows (how specific) produce 10x more milk, so you get 10x the profit. But the formula is not approved by FDA or whatever and they can’t sell it openly.
Very creative, these people.
I always say, if its too good to be true, avoid. What’s a more realistic return, when it comes to investments?
- Low risk – ASB, fixed deposits, savings accounts, blue chip stocks – 2-8% a YEAR
- Medium risk – property (the risk depends on location+luck, but hey), normal stocks, ETFs – 0-50% per year? This is a veeery wide category
- High risk – penny stocks, bitcoin (ayyy just telling it as it is) – unlimited % per year, but also a huge risk of not getting your money back, so..
- Die – Ponzi, random investments
So this includes what NOT to invest. For what to invest, read my guide on what you can invest with RM1000.
So if anything promises returns of 10% or more a YEAR, research the heck out of it. The only ‘safe’ investment is low risk investments. If you do medium or risk investments, only invest what you can afford to lose.
I feel like the above more or less covers 99% of scam investments. They prey on your greed, which sucks, because I have this human flaw too. So we have to keep looking out and update each other on this.
If I missed another tell-tale signs of investment scams, please do let me know – share with us in the comments section. You can also tweet me at @surayaror and tell me.
Bonus: Invest your money, but also be smart about money management. Read my Hack: How to Maximise Cashback Credit Cards article.