Lessons Learnt #3

Too Good to be True

A few years back, a friend of mine asked me to invest in one of his friend's company. I can't really recall what the business is about. But generally the intention of us investing is to provide capital for the business expansion and on the other hand, we will receive monthly return on our investment at a rate of 7% per month. Wow! That is really a good investment. No investment in the market that could give you anything near that.

After listening to the presentation and giving some thoughts to the proposal, I decided to invest a small amount into the company. The reason I invested only a small amount of money was that I was still skeptical about the business model. Nonetheless, I didn't want to miss the boat in case it turns out to be good as claimed.

The investment scheme is pretty simple. I was required to pay what ever amount that I wish to invest. Sign an investment contract for a year. Then they gave me 3 months post dated cheques of 7% from my total investment each. On the date of each cheque, I just need to bank in the cheque into my account. After 3 months, I was required to meet them again to get another 3 month's cheque. After a year, I will get back my initial capital invested.

This is just a perfect investment scheme. My capital is protected. On top of that, I get 7% return per month or 84% per year. Not even ASB can beat this.

Things went on good for a few months. I think at about the 7th or 8th month, things began to turn sour. Somehow they claimed that there were some problems with the business. They could not afford to pay the investors. All sorts of reasons given. In the end, I didn't even manage to complete the whole year. I lost a few hundred ringgit and learnt my lesson well.

With the growing number of investment scams around, I just wish you are not dubbed into any of them. In case you come across any thing similar to this, just ask these simple questions to clear your doubts:

• Instead of asking people to invest in your company, why not go to banks and get loans? The interest rates are lower compared to the return you promised to the investors.
• Why do you want to share the profits with so many investors when it can be used as rolling capital to expand your business?
• Why are you so confident of giving such a high rate of return when you don't even know whether your business will succeed or not? Nothing is guaranteed in business.
  

The modus operandi of such scam is pretty simple. As long as there are new investors coming in, they will be able to pay returns for the earlier investors. But when new investors stop coming in, they will have problem in paying. I don't think profit from the business even though they are dealing with government contracts are that big to enable them to pay that amount of return.

Always bare in mind that there are hardly any too good to be true investments around. Stick to the conventional ways of stocks trading, unit trust, property investment etc. to grow your money. Besides growing your money, it will help you become money wise.