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We are in the 13th cheque season and a lot of us have some liquid cash to spend and to invest.

We need to be careful about how we invest our hard earned money, we need to learn how to avoid risky investments that look good. We are now in the festive season, a season rife with crime and other unscrupulous business activities seeking to take advantage of unsuspecting individuals in the height of the festive season. What brings this to mind is an article published not in the distant past where an investor with one of the ‘reputable’ investment companies faced eviction because they could not afford to pay rentals of E400, while they had a sum in the upwards of E200 000 tied up in bad investments with the company. Today I will focus my energies on assisting emaSwati with identifying legit investment opportunities and how not to fall prey to ‘banoys’ that will eminently crush. I will also shine light on the laxity of the regulator on the issue.

How to spot investment scam

Scams or none sustainable investment products will come with a promise for guaranteed high returns. This is usually the most identifying feature to a scam investment. If the product promises higher returns compared to the average bank return and average return on equity from reputable investments, then it probably is a scam. An investment portfolio works on the concept of pooled funding and taking the pooled funds to invest in equities and other investment products that are market based. If your investment portfolio promises an above average return, then it is likely that market risks are not factored into the calculation and this is not true. Nobody owns the market, so it is nearly impossible for one investor to guarantee high returns with no risks. The promise of high returns usually is one of the indicators to look out for. I often say, ‘if it is too good to be true, then it is too good to be true’.

Ponzi schemes

The promise of high guaranteed investments is usually a sign of a pyramid scheme, where the funds, by new entrants at the bottom of the pyramid, are used to pay a few at the top to keep the lie going. Eventually when everyone who could join is in on the pyramid, that is where it collapses because there are no monies from fresh people to pay the recruiters and only the architects of the pyramid will benefit. Once a company pushes a vigorous recruitment strategy with the promise of high returns then you need to know that it is likely a pyramid scheme. In most cases these will be registered entities, fully compliant with the laws of the land and will dupe a lot of people into thinking they are legitimate because of that registration. Regulation involves a lot of red tape and often comes with inadequate personnel to monitor compliance and that is why it is important for you as an investor to do your due diligence.

Due diligence

The first step in the due diligence process is verifying if the supposed investment firm is registered with the Eswatini Financial Services and Regulatory Authority (FSRA). The authority lists all recognised financial service providers on its website, so this step should be relatively easy to do. If the firm is not on that list, then it is not a legitimate investment company. Also do your own research on the company and its directors and employees. Usually they ought to state who does their investments and what are they investing on and what is their strategy. Comparing the strategy and returns with comparator companies will inform you whether the investment is real or not; if firms using the same strategy do not make a relatively comparative return, then it is likely a pyramid scheme.

Do not invest your money in such. Also, we need to learn that there is nothing as easy money; I will reiterate this, guaranteed, assured profits with zero risks do not exist, every investment has some degree of risk. Never make rushed decisions; if you are pressured into making the decision then it is likely a Ponzi scheme, if they are constantly calling your phone, that is a sign of an illegitimate investment scheme, so walk away. As part of your due diligence, one should ask for documentation, stocks, mutual funds and investment firms are typically required to have a prospectus. If there is no documentation of the investment strategy and verifiable performance with the regulator then it is likely a false investment opportunity, therefore run!

Role of regulation

We need to invest in systems that will protect our people because scams are increasingly becoming sophisticated. Fraudsters can be articulate and financially knowledgeable, with credible websites, testimonials and materials that are hard to distinguish from the real thing. We need to equip our regulator with the right human resources and technological skills to follow up on all registered funds and to check their credibility. We need regulation to move at a faster pace compared to fraudsters. The regulator should also create a fraudster repository so that scammers do not keep registering different companies and continue preying on our people.

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