Sunshine Empire. Profitable Plots. Assetton Fine Wine. Geneva Gold. The Gold Guarantee. The list of scams goes on and on…
Watch the following Mediacorp news report on The Gold Guarantee before we go on to discuss about avoiding scams.
Scams always exist. It is able to because of human’s greed and ignorance. Humans like to get rich quick. It is much more appealing to earn a quick buck without doing anything as compared to putting time and effort to work for money. We can only help those who want to help themselves. Below are the 3 ways to avoid investment scams.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
#1 Seek financial awareness and not more regulation
The solution to scams is not more government regulation. We want an environment that fosters entrepreneurship and not stifled with excessive regulations. As we encourage people to start businesses, there will bound to be unscrupulous businessmen. Also, scams come in one form and another, so it is impossible to regulate everything in this world. Most of the time, they will create the latest fad or story that people can easily believe. For example, a lot of gold scams are initiated in recent years. This is because we had one of the longest gold bull run and it is easier to sell to people who wants to invest in gold. After all these gold scams get exposed and people shun gold, scammers will invent another fad to cheat. Regulation is tough. The only way to protect Singaporeans against scams is to increase their financial awareness. Equip them with the knowledge to discern the soundness of an investment. For example, gold is a negative yielding asset (means you pay to store gold). So you would not have trusted the scammer trying to tell you gold pay out monthly interest.
#2 Check MAS Investors’ Alert List
Monetary Authority of Singapore (MAS) keeps a list of suspicious businesses and publishes it online. You should always check if the company you heard about is on this list. Do not be too happy if it is not on the list because it can still be a scam. Use the next tip to help you.
#3 Identify the characteristics of a scam
Although the assets scammers sell are different, the way they sell them remains largely the same. So this is good news as we can identify the characteristics of a typical scam.
- Multi-level marketing or pyramid structure. You pay an enrollment fee or purchase a product to become a member. Subsequently, you can earn more money by recruiting more paying members.
- Success stories. The company may show you many success stories of how their members made a lot of money in a short time. Suddenly, your millionaire dream is within reach.
- Promises of high return. How high? To me, anything above an equity index fund annual returns of 8% is suspicious. It is very difficult to generate long term equity-like returns, especially for new start-ups.
- Difficult to figure out how the business make money and pay you that kind of returns. How much commission is the sales guy getting after selling the asset to you? How about all the middlemen who need to be paid? Do you think the deal can generate so much profits to pay you high returns?
- If it is too good to be true, it is too good to be true. Ask yourself why wouldn’t the rich people get to these good deals before the retail investors?
I hope the above can help you avoid scams in the future. Like what I said, it is not regulation that saves you from scams, it is financial awareness. I hope I have done my part.