Protect Your Money: Learn the Six Signs of a Financial Scam



The first rule on money is this: If you earn it, do not lose it. Warren Buffett clearly tells us this in the quote above.

For the past years, there have been reports of investment scams all over the globe. The most familiar for us Pinoys was the Aman Futures Group, an investment and privately held company based in Malaysia with branches in the Philippines.

Just a brief background, Aman Futures was reported as a pyramid scheme that duped 15,000 people in Mindanao and the Visayas of Php12 Billion. The "double your money" was a phrase being pitched to join the network. Sadly, over 100,000 Filipinos were victimized.

You need to learn to protect your money. There is no use in having a good amount, especially when it is hard-earned, and then just lose it all in a financial scam. Here are the six signs of a scam:

1. Insane Interest Rates

Bigger than Aman Futures was Multitel by Rose Baladjay back in 2002. The wealth damage was Php100 Billion and has victimized at least 2 million people. The company attracted investors by offering 4 to 5 percent guaranteed monthly interest for a minimum investment of Php10,000. As an alternative, it offered a "double your money" come-on to investors who chose the 18-month lock in scheme.

That would be 60 percent per year! That is an insane interest rate.

Insanely interest rates mean that a scam is going on. They use the Ponzi scheme wherein the company gets money from new clients to pay off the interest of old clients. When there isn't enough money coming in, everything explodes.

    2. Guaranteed High Interest rates Per Year

Keep in mind that only banks can give you a GUARANTEED interest rate per year -- and it is not high. Specifically, it gives you a measly interest rate of less than one percent for your savings account and 1.5 percent for your time deposit.

Even investments in the stock market does not give a GUARANTEED interest rate.

    3. You Can't Understand How They Earn Money

When you are asked to invest your money in a company that promises insane interest rates, ask how they earn money. Usually, they give you an explanation that will only confuse you. Or they will say something about trading European currencies. Our mentors taught us that this is highly volatile and that 97 percent of these traders lose their money.

    4. It Is Just Too Good To Be True

Months ago, I received an email from an attorney of a foreign bank telling me that I was chosen to be the recipient of a huge inheritance money from a British lady who had no heirs. It was unbelievable! When I asked how I could get the inheritance, I was instructed to send $400 to expedite the transfer to my account.

Bottom line, if they ask for money, it's a scam.

    5. They Seem To Be Good And Credible People

The people who are inviting you to invest in these scams may actually be very nice and honest people. But they could be just as ignorant as you are.

In the Royal Manchester Five scam, the top sales managers were Born Again Christians. They believed in their company so much that they asked their religious friends to invest.

    6. Your Financial Advisor and Financial Manager Are The Same Person

Since I have become a member of the Truly Rich Club, I began sharing to friends and colleagues what I have learned about investing. For some, I am their financial advisor. But I do not hold their money.

Instead, I ask them to invest their money in the stock market through buying shares of gigantic companies like PLDT, BPI or Ayala. Even our stockbroker does not hold our money. They act only as middlemen during the purchase.

For my friends who do not have the time to learn how to invest in the stock market directly, I encourage them to invest through an Insular Life's VUL instead. Here, the insurance company's experienced fund manager takes care of their money.

If it is a scam, your financial advisor is also your financial manager. He holds your money. He invests it. He has full control over it. Therefore, he can run away with it.


Make Simple Investments

Today, I invest in two things only.

First, I invest in my personal small business wherein I am in full control of my money.

Second, I invest in the stock market. I buy gigantic companies. Even if I'm not in control, it's okay, because those who are in control are legends like Henry Sy, John Gokongwei and Jaime Zobel, etc. When you invest in the best companies in the stock market, you partner with business titans.

Keep away from scams.
Make investing simple.
Happy investing!


Reference:
1. http://en.wikipedia.org/wiki/Aman_Futures_Group
2. http://www.financemanila.advfn.com/2008/03/philippine-scams-and-pyramids/