Whether you’re a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.
Question 1:Â Is the seller licensed?
Research shows that con artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims. Savvy investors check the background of anyone promoting an investment opportunity, even before learning about the opportunity itself.
The Director of Criminal Investigation recently cautioned over a suspicious pyramid scheme defrauding Kenyans. The scheme run by NMK Capital Investment Limited had, over time, pooled thousands of unsuspecting investors hoodwinked to enter into a six-month contract with the firm with a minimum investment of Sh50,000 or lease their vehicles. This would accrue a redeemable monthly interest of 15% or a similar percentage of compounded interest redeemable at the end of the contract period (6 months). Over 5,000 investors now risk losing their millions. Always do a background check from relevant government authorities before investing your hard-earned money.
Question 2:Â Is the investment registered?
Smart investors always check whether an investment is registered with government agencies. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
Question 3:Â How do the risks compare with the potential rewards?
The potential for greater returns comes with greater risk. Understanding this crucial trade-off between risk and reward can help you separate legitimate opportunities from unlawful schemes.
Investments with greater risk may offer higher potential returns but may expose you to greater investment losses. Keep in mind every investment carries some degree of risk, and no legitimate investment offers the best of both worlds.
Many investment frauds are pitched as high-return opportunities with little or no risk. Ignore these so-called opportunities or, better yet, report them.
Question 4:Â Do you understand the investment?
Successful investors follow this rule of thumb: Never invest in something you don’t understand. Be sure always to read an investment prospectus or disclosure statement carefully. If you can’t understand the investment and how it will help you make money, ask a trusted financial professional for help. If you are still confused, you should think twice about investing.
 Question 5: Where can you turn for help?
Whether checking out an investment professional, researching an investment, or learning about new products or scams, unbiased information can be a great advantage when it comes to investing wisely.
Source: www.SEC.gov, www.Co-opNews.com
