How to avoid fake investment schemes

trueBy Sylvia Juuko

For Harrison, securing a comfortable future for his family is the number one priority. To achieve this, he emptied his savings account to invest in what seemed like a deal made in heaven.

The company seemed legitimate. It was located in one of Kampala’s leafy suburbs and claimed it was licensed by the Capital Markets Authority.

He took their word and did not verify the claims. The investment proposition was for him to make a one-off deposit and in return, he would grow his initial investment by about 20% per month.

He handed sh1m to the company and received sh200,000 at end of the first month. That was the last time he got any money.

Subsequently, all he is getting from the investment company are apologetic e-mails. He has been notified of a downturn in the market and assured that his investment will recover soon.

Unfortunately, this company is not licensed as it claimed and it is likely that Harrison could lose his savings. Harrison’s situation is a common occurrence, according to the amount of feedback from readers of the column, who are seeking advice related to such situations.

To avoid being a victim of such sham investment schemes that are taking different forms, you need to consider the following;

Be suspicious of above-market returns

Before undertaking any investment, look out for the return on investment as well as how long it takes before you get back what you invested. If you are looking at getting your money back very fast, you are going to be vulnerable to sham investments. Are they promising above-the-market returns?

What some unscrupulous people do to lure you into their scheme is to promise you above-market returns. Just like in the case of Harrison, who was promised a 20% return per month, that worked as bait.

Once the first installment was paid, the story changed. It is crucial that you are on the look-out for such tell-tale signs to avoid losing your hard-earned cash.

Are you in charge of your money?

For any investment that you lack control, it is probably likely that you will lose your money. For example, if a company/individual approaches you with an investment proposition, find out who regulates this company for recourse.

If they claimed to be licensed by a regulatory authority, do not take their word. Get a copy of their certificate and also visit the regulator and inquire if they have licensed the company. Consider the company’s plans to grow your money.

Is it legal? If you cannot discern the information given regarding how they plan to grow your portfolio, take it to an investment advisor for advice. It is much better to delay investing your money to get information than being quick to hand it over, only to lose it all.

Define your goals

You must be certain of where you want to be financially so that you can determine how to get there. For example, if your long-term goal is to get the best university education for your toddler or to secure your retirement, the kind of investment that you will choose should have a longer time horizon.

With this in mind, you are not likely to keep chasing the ‘mirage’ of the so-called lucrative deals that will multiply your money overnight. Given that there are a number of goals on your wish list, you need to prioritise them into short and long-term and choose the investment accordingly.

Know your financial status

The current state of your finances partly influences your investment decisions. If you are facing financial pressures, you could be compelled to seek a quick solution out of your bad financial situation. This means that every ‘hot investment tip’ that comes your way will sound promising.

While you urgently want to improve your financial position, this situation should not cloud your judgment.

Follow pyramid scheme trends

Schemes that require you to hand over money or recruit members to increase chances of multiplying your return come in different forms. Some are either online outfits, while others set up offices that are seemingly legitimate.

You should be suspicious of sales pitches that require you to send an advance fee or purchase exotic services that seem too good to be true. All things considered, do not be easy prey for these con-artists that are getting more sophisticated by the day.

A little more due diligence will save you from losing your hard-earned money.

The writer works with Bank of Uganda
Personalfinance222@gmail.com