6 Things to Watch Out for So You Don't Fall Victim to Fake Investments

You likely already know, or even realize, how important investing is. And for you to truly enjoy its benefits, choosing a trustworthy investment is an absolute must. Otherwise, you could end up trapped in a fake investment scheme that will certainly harm you.

Unfortunately, avoiding investment scams is not as easy as it seems. The disguises used by fake investments today are increasingly appealing and often difficult to recognize as sham investments. What's more, many public figures, such as influencers, are apparently promoting these fake investments.

So, does that mean there is no way for you to recognize fake investments and prevent the risk of becoming a victim? Of course not. There are still several things you can do so that you won't be lured in by sham investment offers, you know. What are they?

6 Tips for Choosing a Trustworthy Investment

Here are tips for choosing a trustworthy investment and avoiding fake investments that you can apply.

1. Make sure the legal status of the investment entity/company

The first step you can take to avoid the risks of sham investments is to verify their legal status. This means that the company or entity offering an investment product must already hold official permits from the competent agency or institution.

Here are the institutions in Indonesia that are authorized as regulators and permit issuers related to transaction activities:

• Financial Services Authority (OJK), for banking, financing, insurance, capital market, pawnshop, and technology-based financing products (for example, fintech).
• Commodity Futures Trading Regulatory Agency (Bappebti) and the Ministry of Trade, for crypto assets and futures commodities.
• Ministry of Cooperatives and SMEs, for savings products offered by cooperatives.
• Ministry of Trade, for MLM (multilevel marketing) products.
• Ministry of Religious Affairs, for umrah and hajj travel services.

Is a business license alone enough? In reality, no, because sellers of fake investments can still hold such a permit. However, they certainly do not have a license for the business activity being offered, or for the investment itself.

2. Avoid investments that promise unrealistically high returns

One of the main characteristics of fake investments is a promise of returns that is overly astonishing, and often the figures are stated clearly. For example, the Binomo ads disguised as an online trading platform claimed it could deliver a profit of US$1,000 in a single day.

Although it may sound very tempting, investment offers that openly promise returns are exactly what you must be wary of, because investing also involves something called risk, which will be explained in point number 3 below.

3. Remember: alongside returns, there are also risks in investing

Although investing can generate returns, it also carries risks. Furthermore, the level or magnitude of risk is directly proportional to the level or magnitude of the returns that the investment can produce. This is what is known as high risk, high return.

Therefore, you can already conclude that an investment with the lure of extremely high returns must also carry an equally high risk, right? Thus, an investment that promises large returns yet claims minimal or even no risk can be assumed to be a fake investment.

In addition, trustworthy investment companies will always identify each prospective client first, especially in terms of their risk profile. This procedure is part of know your customer and aims to determine your risk profile, such as your preference for investment products in terms of their risk. After that, the company will help you choose products that match your risk profile.

4. Compare with factual data available in the market

When you receive an investment offer, there is also a way you can verify whether the offer is reasonable. The method is to compare it with data available in the market. Naturally, the comparison should be made with similar investment products.

For example, if you receive an offer for an equity mutual fund, look for comparison data for equity mutual funds. You can also calculate and use data such as the return on investment of other equity mutual funds currently circulating in the market, as well as the data and information listed on the fund factsheet, such as fees, portfolio, returns, and investment strategy.

You can also use stock price indices as a benchmark for stock investments. For example, the Jakarta Composite Index (IHSG) can help you measure the performance of stock-based investment instruments.

As for the money market or savings, you can use the reference interest rate as an indicator. For example, BI7DRR, which is the main benchmark for all interest rates in rupiah. You can also use the deposit insurance rate from the Indonesia Deposit Insurance Corporation (LPS) as a basis for measuring the performance of savings or deposit products more accurately.

5. Learn the mechanics of the investment or trading being offered

In carrying out their scheme, sellers of fake investments do not only dangle fantastic profit figures, but also use a series of complicated terms that are hard for ordinary people to understand. The purpose is to make them appear legitimate and seemingly like true experts.

This tip is especially important for those of you who are relatively new to the world of investing so that you are not easily deceived. Prioritize critical and skeptical thinking. Then, if you come across a term you do not understand, do not hesitate to ask the seller to explain it in simpler language.

If you encounter a trustworthy investment seller, they will certainly be willing to explain again until you understand, you know. It is better to be a “persistent” prospective client than to fall victim to a fake investment and suffer losses later, right?

6. Expand and deepen your knowledge about investing

It is important for you to learn a lot about the world of investing so you can understand investing more deeply and avoid the risk of being deceived by fake investments. Fortunately, there are now many sources of information you can find on the internet.

You can start by reading the latest news about finance and investing, then search online for terms you do not recognize. In addition, you can also follow investment experts on Instagram or join investment webinars. However, you still need to be careful when choosing which accounts to follow and which webinars to attend so that you are not drawn into the vortex of fake investments.

Ultimately, choosing a trustworthy investment requires you to learn a lot, seek out a lot of information, and remain critical. This way, the risk of falling into a fake investment can be reduced as much as possible, because you will not be easily swayed by promises of fantastic profits that are, in reality, not realistic at all.

Those were the 6 tips you can apply to avoid becoming a victim of a sham investment. We hope this review is helpful to you and assists you in choosing a trustworthy investment as well!