Over the years, investment scammers got smarter and sometimes it is very difficult to determine if an investment opportunity is legitimate. Here are five red flags to look out for when analyzing an investment opportunity.
Red Flag #1: Low risk with high returns, guaranteed
If you are presented an investment opportunity that promises no risk but guarantees very high returns, it is probably a scam. With every investment, there is the risk that you may lose some or all of your money and theoretically, the more risk you take on, the more possible returns you can expect to see and vice versa. Remember, high returns are never 100% guaranteed.
Red Flag #2: Tight deadlines with lots of pressure
If someone is pressuring you to invest your money in a project by giving you extremely tight deadlines, it is possible that the opportunity is a scam. Scammers usually don’t want to offer you enough time to research because you may discover their true intent. Investment opportunities should have documents that you are able to read and understand before signing up. Beware of opportunities that try to force you into an agreement without reading first.
A smart investor avoids “get rich quick” and “can't lose” schemes. #WorldInvestorWeek #IOSCOWIW2021 #SCBSmartInvestor
Red Flag #3: Questions not answered
If you ask questions about the investment opportunity and instead of getting answers, you are continuously being pressured to invest, this may be a red flag. Remember, you should have a chance to understand the investment opportunity and investment professionals should be knowledgeable about the products offered.
Red Flag #4: No regulation
If someone is claiming to have an investment firm and is asking you to invest your money, but they are not regulated by the appropriate investment regulator such as Securities Commission of The Bahamas (SCB), this is a red flag. To learn more about the SCB and how you can find out whether a firm is registered, check out our article Understanding the Securities and Capital Markets – An Introduction.
Red Flag #5: Recruiting other investors is a must
If the investment opportunity is one in which you need to recruit other investors in order to see returns, this is a huge red flag and may be what is known as a pyramid scheme. A pyramid scheme is a type of investment scam that asks “investors” to recruit other investors. Instead of actually investing your money, the money from new recruits is used to pay older recruits and founders. The bigger the scheme gets, the more recruits are needed and the business model resembles that of a pyramid. As the pyramid grows, the harder it is to find new “investors”, meaning that the returns begin to dwindle and many recruits lose all of the money they “invested”.
Protect Yourself
To protect yourself from investment scams, remember to:
- Ask questions and take the time needed to understand;
- Research the investment opportunity;
- Confirm that investment firms are appropriately registered; and
- Verify the credentials of individuals offering investment opportunities.
If you think that you have been targeted by an investment scam locally, you can file a complaint with the Securities Commission of The Bahamas by sending an email to either info@scb.gov.bs or ecomplaints@scb.gov.bs.
Great read. Succinct and makes the points clearly. It’s so important that people research the investment opportunities presented to them. So many people who have dogs in the fight will try to sell certain products as a can’t miss opportunity. Again, great read!