A couple of years ago, a new sensation hit Kenya. Investment companies were mushrooming all over. They claimed to offer investors ridiculously high interest for their money. Some would even double the money in just one month! There were no goods to be sold, no services. All you had to do was deposit your money with them, introduce your friends to the company and shortly, your money would double.
Naturally, many people flocked to these companies. Some with their life savings, many chamas as well, pooled their cash and deposited it there with the hope of doubling it. At first things went well and many people reaped from this golden investment. The investment companies started advertising their services, promising investors a 50 – 100 percent returns in as little as 30-45 days.
Unknown to many investors; there was a problem. The companies were not paying off their investors with actual profits. They paid them with the money from other investors. When too many people tried to cash in at once, the scheme collapsed. Victims were lucky to get back a single shilling. Many are those who lost everything. These pyramid scheme companies ruined numerous investors. Asked to explain their actions, some directors of these pyramid schemes reportedly said, “The public deserves exactly what it gets. No more, no less.” These words may seem cruel and remorseless, but there’s an important lesson here: The only person you can really count on to protect you from bad investments is you.
In today’s tough market, people are more eager than ever to find safe ways to make and preserve money. But that also means we’re more easily lured to pitches that seem, and often are, too good to be true. These “opportunities” may range from outright fraud to a legal financial product whose chances of success are stacked against you. According to Sachu Khan, an investment advisor; here are some telltale signs of a dodgy investment and what you can before your chama loses money.
All that glitters is not gold
This is the bedrock principle that underlies all the others. If it’s too good to be true, it probably is. Never forget it! Far better to miss a few good investment opportunities that sound a little strange than to fall for the one bad idea that wipes out all your Chama’s money and sets you back for years, or even decades, on achieving your financial goals.
Avoid making investment decisions alone. Make sure that all your chama members are present. Also, after the presentation, as a group do not make a decision on the spot. Say no to any salesperson that pressures you to make an immediate decision. If they ask “Can’t you make the decision now?” Say No! You have the right and responsibility to check out the salesperson, firm, and the investment opportunity itself. Before your chama considers investing, get the prospectus, review it carefully, and make sure you understand all the risks involved. Beware claims of urgency. Their sole purpose is to get you to act before doing your due diligence. “If it’s a good idea today, it’s a good idea tomorrow.” Sleep on it to avoid making a hasty decision, and do your homework away from the promoters.
Always watch your money
Never trust anyone who wants you to turn over your money to them and then sit back and wait for results. If you understand little about the world of investments, take the time to educate yourself. Constant vigilance is a necessary part of being an investor.
Look for trouble cashing out profits
If a stockbroker, financial planner, or other individual stalls you when you want to pull out your money, demand to know why. Since unscrupulous investment promoters have probably pocketed the funds of their victims, they will go to great lengths to explain why your savings are not available. They may even pressure you to “roll over” non-existent profits into new and even more alluring investments. This will only further delay the fraud being uncovered. If you’re not investing in a product with a fixed term, such as a bond or fixed deposit, you should be able to receive your funds or profits within a reasonable amount of time.
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