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Online investment scams are everywhere: here are 5 ways you can stay safe

As people all around the world struggle to cope with rapidly rising inflation and energy costs, many are desperate to find new ways of earning and growing money. For some, it’s about achieving financial goals (such as owning property) that would otherwise seem impossible. For others, it’s a matter of survival. Unfortunately, scammers are all too well aware of that desperation and are more than happy to exploit it.

In fact, in the UK, reports of investment scams have risen 193% in the last five years. While it’s difficult to find similar numbers for South Africa, the significant number of high-profile stories around investment scams in the country shows that it’s a significant problem here too. And thanks to advances in technology, it’s easier than ever for scammers to appear legitimate and lure in victims.

“Sadly, the world is full of scams,” says Heloise Greeff, the first Female Elite Pro and one of the most copied Popular Investors on eToro, the world’s leading social trading platform. “But with a little know-how, investors can go a long way to ensuring that they don’t fall victim to those scams.”

According to Greeff, there are five tactics in particular that prospective investors can use to help protect themselves from investment scams.

  1. Do your research and stick with what you understand

“Whether they operate online or in person, investment scammers will often promise incredible returns,” says Greeff. “In many cases, they’ll portray themselves as beneficiaries of those returns, posting pictures on social media of themselves driving exotic cars, flying on private jets, and living in mansions. But all too often they’re faking it.”

According to Greeff, if prospective investors do a little research it’ll quickly become apparent how little substance there is to the claims these scammers are making.

“While putting the name of the product plus ‘scam’ into Google won’t always generate accurate results, it’s a good place to start,” she says. “It’s also important to note that investors are much less likely to get scammed if they avoid investments they don’t understand. It’s been a guiding principle for Warren Buffett and there’s no reason it shouldn’t be for you.

  1. Verify, verify and verify again 

Even if your research doesn’t raise any red flags, you should still take steps to verify that the people you’re trusting your money with are legitimate investors.

“In South Africa, if the platform is legitimate, it should be licensed by the Financial Services Conduct Authority (FSCA) and should display its FSP number on all marketing material,” says Greeff. “If they’re an international platform, the same should be true of the countries they operate in.”

  1. Look for the red flags 

“The saying, ‘If it looks too good to be true, it probably is’ remains as relevant as it ever has,” says Greeff. “Look out for red flags such as promises of outsized returns and guarantees that you’ll make a quick buck.

“Another red flag to look out for is if you’re being pressured to sign up for an investment quickly,”  she adds. “If it’s a worthwhile investment now, chances are it’ll still be worthwhile in two weeks, a month, or however long it takes you to feel comfortable with it.”

According to Greeff, investors should also be wary of unsolicited investment offers.

“If an investment really is good, the people behind it won’t need to approach ordinary members of the public through their social media DMs,” she says. “The demand would already be there.”

  1. Understand risk 

In the investing sector, high returns usually require being willing to take on a high degree of risk. In the venture capital (VC) space, for example, investors expect 25% to 30% of the startups they invest in to fail completely with another 30% to 40% breaking even, and a small minority producing rapid and substantial returns. They know that and spread their money accordingly, reducing the overall risk.

“Once you understand risk, it becomes a lot easier to spot if someone is scamming you,” says Greeff. “If they’re promising big returns without making it clear that there are significant risks, then you should avoid them at all costs.”

  1. Don’t spend more than you’re willing to lose 

Of course, some scammers are so convincing that even if you exercise incredible caution, you’ll still end up falling victim to them. But you can still buy yourself significant protection by not investing more than you’d be willing to write off completely.

“During the Gamestop saga and at the height of the crypto bubble, people were taking out loans, remortgaging their homes, and withdrawing their pensions in the hopes of making outsized, quick returns,” says Greeff. “While many of them were investing in legitimate platforms, they were hurt really badly when things came crashing down. If they’d exercised a little caution, they still would’ve lost money but their lives wouldn’t have materially changed. The same is true for the victims of scammers.”

Stick with established platforms with strong track records 

Now that you have a guide for staying safe from online investment scammers, how can you ensure that you get maximum returns on your investments?

For Greeff, it’s simple.

“Follow the people who have strong track records on established, trusted platforms and who are endorsed by the platforms themselves,” she says. “Doing what they do doesn’t guarantee that you’ll get the same returns, but you’ll definitely be safer than if you put your trust and money into an investment vehicle that’s apparently come out of nowhere.”