Of scams, shams and schemes : Ten questions to ask before you put your money in the wrong place

http://thestar.com.my/news/story.asp?file=/2012/10/4/focus/12121017&sec=focus

Ten questions to ask before you put your money in the wrong place.
Here are 10 questions to ask before investing in a money-making scheme:

1. ARE the returns too good to be true?
If someone promises you 20% a year when fixed deposits pay 3%, that’s a damn good rate of return. But you need to find out what the risk is. Typically, the higher the return, the higher the risk.

2. DOES it claim to protect your capital?
If your returns are high and the scheme promises to preserve your capital, run as fast as your two legs will carry you. No one, not even the greatest investor the world has seen – Warren Buffett – can promise you that.

3. HOW is your capital protected?
If capital is protected and the return is reasonable, ask this question. If it is merely the word of the scheme or the company that is running the scheme, it will not be worth the paper it is written on if the scheme collapses and goes bust.

4. WHY does the company not make the money for itself?
If you are still convinced that they can give you such a return with no corresponding risk, ask yourself this question. They can very well borrow some money from their bank, sell all their assets or beg from their relatives if they can get that kind of returns instead of letting you make the money. Generosity like that does not exist.

5. HOW much work do you have to do?
The less work you have to do for the returns, the more suspicious you should become. If you are in direct selling, you have to work hard to get your commissions.
But if you are sitting back, kicking off your shoes and putting your feet up on the stool while watching the world go by and your money flow into your bank account, let me tell you something: It won’t last!

6. DOES it pay you when you recruit someone else into your scheme?
If it does, be very careful because that’s the classic way of spreading the scheme. You recruit someone, you get paid, your recruit gets someone, he gets paid – it spreads in geometric progression like wildfire.
But don’t forget, you most likely have not recovered your initial investment. The scam is still accumulating money and waiting for the last minute before it packs up, money and all, and flees.

7. DOES it claim that it has a proprietary product, service or method?
Oldest trick in the book, this one. They have such a fantastic advantage over the rest with this and they are so generous that they want to share it with you so that you will gain from it too. Charity from those who have not made enough money to be that charitable is rather suspect.

8. WHO are the promoters? Are they reputable people with solid track records and businesses built up through hard work? Or are they commission salesmen and saleswomen who have a glib tongue with which they smooth over the pitfalls of their so-called business?

9. HOW long have they been in business?
If they are new to the game, better be suspicious than sorry later.
There are many reputable direct sales organisations and if you are a good salesperson, you can make some money but usually they have been around for a while. I won’t name them, you know who they are.

10. HAS it started delaying payments?
Oh, poor you! If you are in it after asking all these questions and were still, well, conned, it may well be too late.
If they are delaying payments, they either got it wrong and can’t pay you or they are in the process of running and leaving you high and dry. Get the investigators in and salvage whatever you can.
Finally, remember, these scams can be quite smart, sophisticated and rather persuasive. Put them to the test by asking and answering these questions — hopefully you don’t have to answer question 10 by which time it may be too late — and we guarantee you will be safe.
Or your money back. Promise!
> P. Gunasegaram is an independent consultant and writer