Ways to Detect Scams

Recently, we’ve been getting a lot of reports of victims who have fallen for scams that misuse our company name. While we’ve reported the scammers to the police and the regulators, I thought it would be good to talk about scams as this week’s topic. Specifically, I’m going to give you four red flags to look out for so you can identify scams better.

The first thing is the speed of returns. Scams usually promise you returns in very fast turnaround times. Sometimes it’s days, sometimes it’s even a few hours. If an ‘investment’ says it will give you profits in 4 hours, I’d highly suggest you think twice. Most proper investments give returns once a year, sometimes less frequently. Fixed deposits are an obvious exception, but the returns on FD justify the ability to give monthly returns (it’s still not daily or hourly!).

The next thing is also related to speed. Scammers like to rush you to make a decision. They may set very short deadlines for you to join the ‘investment’. They may also create artificial scarcity by saying that they can only accept a limited number of investors. Whatever the case, proper, legitimate investments should always give you some time to decide, as well as furnish you with a product disclosure sheet or document for further reading.

The third red flag is stating their expected returns in absolute or flat numbers. If I said you’ll get RM1,000 return for an investment of RM500, it doesn’t look as strange as saying you’ll get 200% returns does it?

RM1,000 return on RM500 investment is exactly 200% return.

Remember, scammers do this to fool your perception of what is ‘too good to be true’. Legitimate investments always quote their returns in percentages. Even bank fixed deposits state a percentage return and never a flat number return. One additional tip on the amount of return to look for: proper investments usually quote returns of up to 10% per YEAR. That means if you invested RM500, you’re looking at a maximum of RM50 generated per year. Remember to keep this perspective.

Finally, scams usually want to catch as many victims as possible. To ensure this, they will set the barrier for entry very low – that is to say only a small amount of money is required to start investing. This makes potential victims think less about entering into the scam. For example, it requires a lot more thought if you were investing RM10,000 versus investing only RM300.

Friends, it’s important to understand that scammers are trying to make you skip or bypass your critical thinking. The four steps above may seem obvious individually, but put together they can present a very compelling urge for us to skip proper thinking about investing our hard-earned money.

Stay safe when investing and remember to review the investment for any of the red flags. A single red flag may not guarantee it is a scam. However, if you’re seeing two or more red flags – please avoid that particular investment.