What is an Investment Scam and How To Avoid Them (Part 1)

Thousands of Filipinos are actively looking for ways on how to make their money grow in the hopes of getting out of poverty. However, most Pinoys are impatient and want the easy way out. That’s why some of them put their hope in the lottery hoping that they’ll win and be an instant millionaire while some, are investing their money into investments that guarantee high returns but with little to no risk. Sounds too good to be true, isn’t it?

If it’s too good to be true, then it probably is.

In a nutshell, an investment scam is a fraudulent scheme or deception usually with a purpose of getting money from people. It often operates with the promise of easy, guaranteed returns in the shortest possible time. Unfortunately, that promise resulted to thousands of Filipinos falling into prey in their get-rich-quick schemes, losing millions of pesos in the process.

This two-part series will give you tips on how to spot investment scams and ways on how to protect yourself from it.

So, before handing your hard-earned money in an investment program, be on the lookout for these red flags:

How to spot investment scams?

“Instant Millionaire,” “High returns,” “Risk-free”

A legitimate investment always has a degree of risk involved due to external factors such as the current economic landscape, market movement, and own personal decisions. There is no such thing as guaranteed, risk-free and high-yielding investments so if you are offered a safe and worry-free investment, immediately consider it as a red flag.

“Open minded ka ba?,” “The more recruit, the better”

Businesses earn by selling products and/or services and no business gains solely from recruitment. This type of scheme is commonly known as ‘pyramid scams’ and they lure people in joining them through the testimonials of their ‘business partners’ that are allegedly earning huge amount of money when they started to be a part of the ’business’. Once convinced, they will require you to pay an entrance fee which usually ranges from P10,000 to as much as P50,000.

No product involved.

Don’t get it wrong, not all networking schemes are fraudulent but take caution if the investment program does not have a product involved and you will earn solely through recruitment and referrals. Remember, a business capitalize on products and/or services and not through recruitment. If the ‘business’ doesn’t sell any product, then steer clear of it.

Vague information.

As the saying goes: It’s better to be safe than to be sorry. Make sure that you do a probe on where you will invest your hard-earned money before doing so. Ask questions like “Where is your office?”, “Do you have a website?”, “Do you have a contact number?”, “How much is the minimum placement?”, “What is the rate of return?”, “How will I make money?”. Do not hesitate to ask questions. After all, you all have a right to ask because you will entrust your money to them and you need to know if a certain product is fit for you.

If the offer is vague, confusing and the company is not transparent on how they earn, then consider it as a red flag. Remember, do not invest your money if you do not understand how things work. Moreover, you can also inquire at Securities and Exchange Commission (SEC) if the company or person with whom you are transacting with is legitimate and is duly registered to sell investment products.

“Invest your money right now!”

In investing, it is often said that the best time to invest was yesterday and the next best time is today. While there is a sense of urgency in investment, a good financial advisor will give you time to think things over, do your research and diligently answers your questions in return. However, if an individual is rushing you to get your money, then be wary. Usually, a con artist will tell you stories like “My friend already earned P100,000 in just a month” to entice you to not miss the fun. Don’t fall into this trap. Remember, a real investment doesn’t have a guaranteed return and it takes time to grow.

“Information is nowhere to be found”

If you made a research about the investment company online and it is nowhere to be found, there is a high chance that it is a scam. Before you invest a large sum of money in an investment company, make sure you do your thorough research. Search for its registered name online or check with Philippine Investment Funds Association (PIFA) if a company or individual is registered to sell investment products. It’s better to be safe than to be sorry.

On the next series, we will discuss on how to protect yourself from these scams. Click here for the second part of this series.