Online scams are all over and continue to rise, threatening unaware investors hoping to make a quick buck.
In the UK, for example, there are reports that investment scams have risen by 193% in the last five years, said Heloise Greeff, the director of Greeff Invest.
The group said that finding similar numbers for South Africa is tricky. However, there have been a significant number of high-profile stories around investment scams.
Greeff said the world is full of scams, but with a little know-how, investors can go a long way to protect themselves from falling victim, including:
Do your research and stick with what you understand
Putting the name of a product plus the phrase ‘scam’ in Google won’t always generate results; however, it is a positive place to start doing some research, said Greeff.
It is further important to avoid investments that are outside of your scope of understanding,
“Whether they operate online or in person, investment scammers will often promise incredible returns,” said Greeff.
“In many cases, they’ll portray themselves as beneficiaries of those returns, posting pictures on social media of themselves driving exotic cars, flying on private jets, and living in mansions. But all too often, they’re faking it.”
Verify multiple times
According to Greeff, even if research raises no red flags, you should still take the necessary steps to verify that the person you are doing business with is legitimate.
“In South Africa, if the platform is legitimate, it should be licensed by the Financial Services Conduct Authority (FSCA) and should display its FSP number on all marketing material,” said Greeff.
International platforms have similar standards in accordance with the jurisdiction in which they operate.
Look for red flags
Often if it looks too good to be true, it is, Greeff said.
Promises of outsized returns, guarantees of quick returns and pressure to sign up for investment are common red flags.
A quality investment should still be worthwhile in two weeks, a month, or however long it takes to feel comfortable, said Greeff.
According to Greeff, investors should also be wary of unsolicited investment offers.
In the investing sector, high returns usually require being willing to take on a high degree of risk.
Some investors, such as venture capitalists, expect between 25% and 30% of their startup investments to fail completely, and only a small minority do better than breaking even.
“If they’re promising big returns without making it clear that there are significant risks, then you should avoid them at all costs.”
Don’t spend more than you are willing to lose
You can buy yourself protection by not investing more than you are willing to write off completely.
Greeff said that if investors exercise a little bit of caution and limit expenditure, even if they fall for a scam, they will not lose all the money in their livelihood.
“During the Gamestop saga and at the height of the crypto bubble, people were taking out loans, remortgaging their homes, and withdrawing their pensions in the hopes of making outsized, quick returns,” said Greeff.
“While many of them were investing in legitimate platforms, they were hurt really badly when things came crashing down.”