In times of uncertainty, such as an economic downturn, or the COVID-19 pandemic we have been experiencing, the need for money becomes almost desperate -for both those with good intentions, and for fraudsters too. 

 This leads to an increase in scams such as pyramid schemes, Ponzi schemes, “lotteries”, high return investment products, etc. And as much as we think we are unlikely to fall for scams, nobody is immune to fraud. 

 Sometimes we are unable to tell whether something is a scam or not because it is introduced to us by friends or family. Sometimes we even hear about these investment products from people we admire such as celebrities and other socially influential sources. 

So how can we determine what is legitimate and what is a scam? Some red flags to look out for when you’re being offered an opportunity are:

• Extremely high returns at low or no apparent risk. 

Be suspicious of anyone who guarantees that an investment will perform a certain way. All investments carry some degree of risk.

• The use of pressure tactics such as claiming the opportunity is available for a "Limited time only!” 

You should never feel pushed to make an investment decision. Even when it is a legitimate investment, take your time.

• Seemingly very complicated investment structures and difficult to understand procedures.

 Avoid anyone who is pitching an overly complex investing technique or product. It is critical that you fully understand any investment you're considering, including what it is, what the risks are and how the investment makes money.

• You get offered commissions or additional gains for “recruiting” other people to the product or the scheme.

If it seems too good to be true, it probably is.

Whenever you are offered a new investment opportunity, here are some things you can do to ensure the offer is legitimate:

• Research the investment.

Generally, you should stay clear of investments you don’t know much about. Before you make any investment, understand how it works, the associated risks and all the fees involved. Make sure it fits with your financial goals and your other existing investments.

• When in doubt, get a second opinion.

Before you invest in anything that you don’t know too much about, get a second opinion from an unbiased, knowledgeable source – and by that, I mean from someone who is not likely to gain from your investment in this product, and is qualified to give an opinion.

• Ignore the "everyone is doing it" hype.

To quote our collective mothers, “If your friends jumped off a cliff, would you?” Be wary if the major selling point for the investment is how many people are investing, and not the details of the products workings. 

Sometimes, we ignore all the red flags and other signs because of some pre-existing assumptions we hold. 

For instance, we sometimes assume that all companies and organizations are legitimate because they are licensed and monitored by the government. This is not always true. Even businesses that are licensed could still try to take advantage of you by using various unethical (but not illegal) tactics. 

 We may also assume that all Internet websites are legitimate. This is not true. Websites are quite easy and cheap to set up. Fraudsters can easily set up often very impressive and elaborate websites and populate them with whatever untruths they wish to. 

Another very common assumption we may make, is that, the amount they are asking for is too little for it to be a scam. Sometimes scammers target a large number of people and try to get a small amount of money from each person. It could be a scam requesting for as little as five shillings from each individual via mobile phone. 

In summary, be vigilant and focus on slow and steady investing instead of making decisions based solely on promised returns. 

In the words of Paul Samuelson, Economist and Nobel laureate, “Investing should be like watching paint dry or watching grass grow”. 

Be patient with your investments and you will eventually reap from what you’ve sowed.   

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