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Nature never ceases to amaze me. A few years ago during winter, our Border Collie passed a little too close to our heater at home and, out of sheer curiosity about this heat-emitting wonder, walked away with a burnt snout. To this day, she avoids the heater by a few meters, even when it’s switched off, because she has learnt from her mistake.
In the last decade names like Fidentia, Herman Pretorius, Leaderguard, King Group and Sharemax haven’t only been synonymous with fraud, but have also been responsible for the loss of millions in hard-earned money.
Students were forced to give up their studies; retirement was postponed (indefinitely, for some); and peace of mind was destroyed. Even suicides were named as one of the horrid consequences for the victims of these fraudsters.
Unfortunately, it seems as though many South Africans tend to forget such events too quickly and they often walk into the exact same trap again when promised quick and easy returns over the short term by deceptive individuals.
Even when they know that it sounds too good to be true, the promise of a brighter future seems too good to resist and, unlike our Border Collie who learnt her lesson, they run the risk of burning their snouts ?yet again.
My aim this week isn’t to turn back time or to determine who should be blamed for what, but rather to tell you as an investor how you can avoid these traps by learning from your own mistakes, as well as from the mistakes of others.
I offer you five questions you should ask yourself before entering into any type of investment agreement in future:
1. Is this company approved by the Financial Services Board (FSB)?
Before you invest, contact the FSB either telephonically, or by visiting their website (www.fsb.co.za) to make absolutely sure that the investment company and its advisers are approved by the FSB to manage the products related to your investment. Avoid the company if it is not an FSB-approved provider, or if approval has been suspended.
2. What do I know about this company’s history?
Do proper research on the company and familiarise yourself with its management and the way it functions. Contact references or make use of the internet to determine if anyone has ever been misled by the company or any of its advisers. If the proposed scheme or investment seems similar to a previous fraudulent scam, walk away. It’s simply not worth the risk.
3. How much am I investing and how much will I earn?
Be wary of promises of high returns over a short period of time. Chances are it’s either a scam or involves something illegal. Always remember the old saying: If it sounds too good to be true, it most probably is.
4. When will I get my earnings?
The moment you are told that you will be made rich within a few months or even within days, be extremely careful. Unless you win the Lotto, I have yet to find a legal investment that can guarantee you any form of immediate fortune. Come to think of it, be wary of the word guaranteed in general, especially when it comes to investments.
5. How will I earn it?
Ensure that you know exactly how your money will be invested. If you don’t understand the process and your adviser cannot explain it to you in a clear and concise manner, be careful. Remember, it is your money and you need to understand how it will be invested.
Do not hesitate to reject a proposal or to request an alternative investment proposal if you feel uncomfortable with any aspect involved in it.
Always use good judgement when making choices that can affect your future. Don’t let a testimonial by some important or famous person be the deciding factor in why you choose a particular investment company.
In conclusion, I recommend that investors always seek the advice of a recognised, FSB-approved financial adviser before making any big investment decision. I know that extra adviser fee may seem like a waste of money, but these advisers are experts in their respective fields and they possess the ability to identify and prevent mistakes.
Learn from the mistakes people have made in the past and remember: the choice is always yours.
* Schalk Louw is a portfolio manager at PSG Wealth
This article originally appeared in the 12 May 2016 edition of finweek. Buy and download the magazine here.
