Have you received invitations to coffee or Zoom meetings in order to invest your hard-earned money with the promise that it will double in two months?
Or maybe invest nothing and you'll get money out of it?
Chances are, you might be getting yourself into the doomsville that "networking" (Filipino connotation) circles are. In this day and age, it's very difficult to believe that there are still so many people who fall for their traps.
The best way to avoid this is to get yourself educated and in this post, let's take a quick look at how you can initially tell that a business is shady and may just be there to suck you out of your money and reputation.
Legitimate fast money?
In the most basic sense, legitimate return on your investment is usually when there is an existing product or service that is so good that it spreads into the consumers really fast like products that suddenly go viral online. There will be a surge of orders, giving the owners or investors fast cash. Another example would be legitimate investments into stocks of a company and it suddenly increases in value - but even this is not a regular occurence.
On the other hand, there is a really old scamming system called the pyramid scheme. Usually, this is when your Php 5,000 investment is promised to be doubled in two weeks or any given brief period of time. Furthermore, it usually involves you talking to other people and convincing them to pitch in their own Php 5,000 as well. Now, you might see a double in investment fast but you will see this will all go down the drain as fast as you earned it. You might get lucky and receive a return before the pyramid comes crashing down - but how about those who you convinced to invest as well? Will they be as lucky?
The Clever Disguise
Since it is kind of known that just investing some cash in promise of large returns is usually a big red flag of scam investments, there are quite a few now who are cleverly disguising their scam behind a range of equally shady products.
How do you tell when a pyramid scam is hiding behind products? The biggest sign is when the products do not have a big appeal to the market or the "networking" is a bigger focus than the product. They would say something along the lines of "Don't worry this is not a networking scam because we have these vitamins that you need to sell...but if you are able to invite others to register, you'll get a 20% cut in their sign up fee and also a commission for whatever they sell."
You will also notice that a lot of these products are priced higher than the regular ones you see in shops. For example, when you normally pay for Php 80 for a whitening soap, the "networking" person is offering one to you for Php 150. They will say it's higher end but when you look at the ingredients, they're actually the same thing.
Another example that came to mind was a hog raising "business" in the past. I don't know what happened to that one and I'm not sure about the exact timing but the investment style was that you put in some money and in a month or even less than that you get a return. Now, think about the life cycle of hogs raised for their meat - there is no hog that reaches full maturity within one month so how the heck do you earn your return before the hog even matures? The answer is that the hog business is a front, the real deal is the "networking" that is behind it.
More often than not, the networking part appears to earn more money so people actually focus on getting others to sign up than selling the products.
This should not be confused with investing in start up companies. Start ups, when legitimate, follow the correct procedures in getting investments from the public. They might start small with crowd funding companies like Go Fund Me or with Kickstarter where you might be promised a product (not shares) with your donation. Others will sell shares in exchange for investments. I don't exactly have a good grasp of this so you might want to do your own research or consult a lawyer/consultant if you are looking to invest into something.
You Got a Friend In Me
It is but a very sad fact that the initial victims of these scammers are usually the people that they know like their friends, coworkers and their families. There will be people who you know will shamelessly ask you to invest in something thay they know themselves is not a legitimate business.
Rapport is not very easy to establish in sales and marketing in a general sense. This is why brands are now investing in influencers and those who are known to be trusted by the people in order to build that bridge. In "networking" scams, those who want to go about this fast exploit their own network because there is no effort required in establishing that rapport. The trust is already there, ready for some playtime.
I personally do not understand how people can still call themselves your friends and fool you around like that, but it is always better to be safe than sorry. Unless your friend is licensed or legitimately employed by a company to work with investments (no, reading a book or two on stock investment is not enough education), I suggest you do your best to decline the offer.
The Lifestyle Factor
A very common thing that I notice with these scams is that the "recruiters" appear to live very lavish lifestyles with their new cars, homes, clothing, etc. They seem to be non-stop travelling and never seem to work a day in their lives. Sometimes they make you wonder if they have money trees growing at home or they're just in massive debt but they will tell you there's this investment thing where they just put their money on and let it grow. Like a freakin money tree.
If you don't know it yet, these parade of lifestyle are just part of their image to convince you that their investment scheme works. That one day, you too, could buy anything you want without any hard work at all. Whew, it's cringey just typing it out.
If they tell you they earn as much, request for bank statements, bank transfer proof or even BIR tax documents to prove that the money is legitimate and it exists. The properties should at least be named after them. If you are told that the business is legitimate for at least one financial year, ask for financial reports from their accountants and tax payments.
Otherwise, the lifestyle factor is all just a part of the scam. If they're not born ultra rich, they don't have a high paying job or business, and they ask you out for coffee to talk about an investment...well, you're in for some good financial trouble.
Safe Investments
Now you might be wondering why I'm talking about all these when I am not a financial expert myself but knowing what to avoid when it comes to investment does only take a good amount of awareness and knowledge on the scams around us. Also known as common sense.
Investments, however, take a bit more research and at times may require that you consult with another expert or a lawyer to check on its legitimacy. For example, investing in stock market has different factors to study compared to investing directly in a business venture.
Stock markets. If you are investing in stock markets and you are new to this whole thing, the best way to go with be for mutual funds in banks or other financial institutions. Again, not always your friend doing this for fun. Put your money in safer institutions while you study how the market works, what the terminologies are, etc. There is a reason people go to school or get licences for this type of work. It is not an overnight thing.
Business investments. Another common investment you may be thinking is into your friend's small business. However, if you are just loaning the money in the short term this is something that you might have some personal arrangements that you prefer. Anyway, if you receive an offer to invest in a business whether pre-existing or starting from scratch and you want to or are promised for a longer term, the first thing you should ask for is a business plan (this may be written by experts like consultants or accountants). You should also check on market studies on whether or not the market has the appetite for your business idea. It is also important to ask what is in it for your investment. Your money could be converted into shares in the company - this should also be clearly stated in a contract or an agreement (that should also be checked by your lawyer) before you give even just a single penny. It's always: contract first, money next.
Franchising. This is also a good way to start a business if you're new to the game. Be very careful in choosing a good company to work with and go where your heart is. Think of a business that you are happy to work on and happy to maintain. Franchising almost always include seminars about the business and also will guide you every step of the way in terms of supply. At times, the head company will do most of the large scale marketing for you. For this, make sure you invest direct to the company and not another fella of yours - unless of course, the fella works for them.
Rule of Thumb
The most important thing you should remember when people try to ask for your money to invest is,
"If it's too good to be true, then it probably is."
Think about all the hard work that legitimate companies and business owners give in order to have returns on their investments. It takes a very complex process to actually get a business going. It's not as simple as attending a Zoom seminar to get rich. If it is, wouldn't we all be billionaires by now?
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