10 things to look out for before you part with your money in investment

Investing is always great, but sometimes you need to be on the lookout for those that might land you in financial trouble. Stephanie Nguku (pictured), the CEO and Founder of Upscale Consulting, tells you exactly what to look out for.

They try too hard

As the old adage goes, when the deal is too good, think twice. Good sales people know too well what people want to hear. If an investment sounds too good, like most things in life, it probably is. Watch out for pitches which use hyperboles such as “incredible gains with no risk”. This is especially if you‘re being offered high returns with no clear explanation of how they will make/invest to give arrive at the high return on investment (ROI).

It’s unregistered or unlicensed

Most unlicensed investments are generally intended for investors with enough income that they can afford to make mistakes. If you’re an average investor and are offered an unregistered investment, it’s a warning sign that you need avoid it. Such investments do not have to abide by the laws and regulations that protect investors investing in publicly-traded stocks or bonds; and or are mostly regulated by Capital Markets Authority. So unless you’re a professional investor, consider sticking to traditionally regulated securities. Again, if anything goes wrong with the investment, you have no recourse to turn to.

It sounds too complicated

If how you are supposed to make money is so complicated that you can’t explain it to someone else, that’s a warning sign to stay away. With so many opportunities to make money, stick to things you understand so you know what to expect. Your conscience will also be speaking to you, so listen to your gut.

Everyone is buying into it

Just because others are buying into an investment — even a noted investor, doesn’t mean that you should buy it. Investors have different needs and time horizons, and the others‘ reasons for owning a stock might be completely opposed to what your financial needs are. Find investments that are right for you, not right for someone else. Do your due diligence about the investment before putting in your hard-earned money.


The share is down — a lot

The fact that the share is lower in price doesn’t mean it can’t keep going lower. Whereas it’s always recommended to buy a share when it is at low value, you also need to understand why the trend is so. Stocks that decline sharply often remain at lower levels for a significant amount of time — time that you can use to research the cause of the sell-off and determine if there’s still a reason to buy.

 
You have to borrow to invest

Unless the returns are sure and especially for a high risk investment, borrowing to invest is likely not smart. Remember that the borrowing will come with an extra cost called interest, if the investment does not turn out well, that leaves you even in a worse position.


It does not match your risk tolerance

Different people have different risk appetites. Are you averse to risks or a risk taker? Any time you are offered an investment opportunity, ask what the risk involved is and assess it according to your risk appetite. You do not want to get into something that makes you nervous, that if you lost money would destroy you financially.

Too much urgency

Undue pressure into buying an investment now before you “miss out” is a big red flag. Never tolerate sales pressure when investing. A good investment based on fundamentals is likely to be a good investment in a week, a month or even a year. If someone is encouraging you to hand over money immediately, it’s likely a scam. Instead, stick to long-term, fundamentally sound choices.

The investment is not contractual

A standard contract that stipulates the terms and conditions, disclaimers and all the necessary clauses is crucial. Without a contract, should anything be amiss you will have nothing to support the basis of the investment. Additionally, have a lawyer check out the document for credibility.

 You have different investment objectives

Access your investment objectives based on your financial objectives/goals. Do you want growth of your capital, or do you need income? How about a combination of both? Different investments offer different types of rewards. If you get into a long-term investment that locks up your money, and down the lane you need the resources to finance a short-term goal, then that can complicate somethings for you. Other investments would penalise you if you liquidate them before the agreed time-frame. So consider much what financial goal you intend to meet with that investment.