Investing is steadily becoming more popular, so it’s easy to find a lot of products that you can put your money in. From Unit Investment Trust Funds (UITFs) to stocks, bonds, futures, and others, there are many options to try to grow your money with.
However, it’s a reality that there are some attempts to scam people out of their hard-earned money. These scammers offer what seems to be legitimate investment opportunities which promise a considerable amount of return.
So how can you tell if an investment product is legit or not?
Like other scams, these are done with varying levels of sophistication, so some are easy to spot while others aren’t. However, if you see any of these 4 investing red flags, you should think twice before putting money in.
1. Risk-free investments
No matter how conservative the instrument is, all investments carry some form of risk. Even government debt securities like Treasury bonds have it, because there’s still the possibility (even if the chances are really low) that the government won’t be able to repay its debt for some reason.
That’s a fact which you have to accept if you want to start investing. It’s also why, if you take a risk assessment and find that you’re risk-averse, you won’t be able to start investing – at least, not yet.
If you find any investment product that claims to be 100% free from risk, that’s a definite red flag. Any legitimate broker or agent would always be upfront about the risks that your money would face if you invested it in that product, because they want you to make informed decisions.
That’s also the benefit of seeking guidance from investment professionals – you are ensured that you are going to get a crash course on investing, minus the sales talk.
2. Guaranteed returns
Doubling your money in a year. Growing your money three-fold in a short span of time. Making millions without having to do anything.
These are just some of the many reasons why people end up getting victimized by investment scammers. They promise much more money, and all you need to do is trust them.
Of course, there are instruments which can potentially double or triple your money. Some people can really make millions without having to do anything. But you have to understand that in order for them to be able to enjoy those, at some point, they started from scratch, and they made sure they understood what they were getting themselves into.
There are volatile outlets out there whose value can go up and down fast, and whose returns are never guaranteed.
Fixed-income securities, on the other hand, provide coupons that let you earn a set amount. Payment is regular, making your income predictable but also limiting the amount that you can earn.
Finding bonds with coupons that effectively double your money in a very short time is impossible. After all, this sort of debt would end up being troublesome for the borrowing company or organization, and so none of them offer coupons that big.
If you see an investment that guarantees huge returns like doubling your money quickly, you can consider this as another investing red flag.
3. Invest now!
Having help for investing, whether from an actual person or through an app, is a good thing. However, it can be bad if you start feeling pressured to put your money in right then and there.
It just makes the investor more vulnerable to making bad decisions because they are not given enough time to contemplate, research, verify or talk to somebody about a milestone as important as investing money.
Making the decision to invest is a big one. After all, you’ll be using your hard-earned money, and you can never be 100% sure that it’ll grow as much as you expect it to (or even at all). Putting pressure on you can make you rush the choice that you make, which you may end up regretting later on.
Any legitimate broker or agent would give you enough time to think, and would gladly provide any information you need to make the decision that is right for you.
On the other hand, high-pressure tactics are common among unscrupulous people who just want your money. This is another investing red flag to watch out for.
4. Unregistered investment company
The financial services industry is heavily regulated by the government because the companies that operate in it work with money and so could have a serious impact on the economy and the lives of Filipinos.
The Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), and the Insurance Commission (IC) are the regulatory bodies.
Banks, investment companies, and stock brokerages are among the businesses in the financial services industry that offer investment products. This means that they have to follow strict guidelines which are meant to keep customers safe.
Only invest through companies that are licensed to operate and to offer such products. That way, you’ll be confident that your money will be looked after, and that you’ll have a regulator to run to for help in case you really need it.
If the company offering you an investment product isn’t registered, that’s a big red flag. If that’s the case, you should just walk away instead of giving it your hard-earned money.
