How to spot a con (#221)

I find it odd that so many people fear the stock market and then get lured into financial scams. Inspired by James, who is trying to keep his clan from being conned, we help you figure out when something is just not right. 

Here are some tips to get you going:

• Find out if the company or product is registered with the Financial Services Conduct Authority (FSCA). This is not foolproof, but it takes a diligent kind of con artist to steal money in this way. It does filter out a lot of the scum.
• Run the opportunity through the Just One Lap five concepts filter:
  • At the end of this experience, will you own an asset? 
  • Will you earn income on that asset and will that income compound? 
  • Will the returns beat inflation? 
  • Compared to what your index of choice did over the same investment period, do the returns seem too good to be true?
• The promised returns are a huge red flag. If you're new to financial matters, it's hard to know what's a lot and what's a little. As a rule of thumb, when an "investment opportunity" offers monthly returns, be very suspicious. It's industry practice to quote returns for a year. 
• Google not just the company or product (that's usually fairly easy to control), but also every individual's name associated with the product. Scammers love getting away with scams, so they tend to circle back.
• If you find media articles about the legitimacy of the product and the person you're dealing with tells you they're taking legal action against the media house, be very suspicious. This is an old trick to put potential investors at ease. Remember, you don't have to be in the right to bring legal action.

We also spend a little time on helping you think about alternative, unlisted investments and the place they should have in your portfolio.

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James

How do you know you are investing with a fraud? More importantly, how do you convince your friends or family that they are going to get fucked?

A friend of mine invited me to listen to a guy that is willing to invest your money through his company.  The returns are absolutely amazing!  77.64% for the year in 2017! 

To the untrained ear, this guy sounds lekker.  He explained that they move the money to America and use a computer program (that his son developed) to predict the market.  The level of risk is then adjusted by the amount of gold (held at the bank of England) in a portfolio. They do all of this at a fee of 1%. 

I asked him a few questions about custodian accounts, insurance, brokerage, total investment cost, TAX and all kinds of clever shit you and Simon spoke about on the show.  I could see this guy has no idea what I am talking about and then he referred to an ETF as an "Electronic Traded Fund" then I knew this is a fucking keeper!  He told me that he is not here to convince or force anyone to invest with him. But there he was, trying to convince people to invest with him.  

I am convinced this guy is a fraud, but my friends are not and eating up every word this guy is saying.  My friends have family invested with him and have seen returns so now they are true believers.

What do I do?

Win of the week: Martie

I enjoy your writing and podcasts. Think the fact that you do not come with a background in finances makes it easier for the ordinary person to relate to you. And the fact that you have learned so much about finances gives us hope that we can do it too. Definitely an inspiration. 

You and Simon are a mean team and I am really glad I discovered you. 

Ani

I have an option to take a pension backed loan. Each month, the payment will be deducted from my salary. Should I default, they will take the money from my pension. 

The interest rate for the loan is prime minus 1%, and there are no registration costs (which would be a minimum of R35000 according to the bank should I apply for a 2nd bond).

We are expecting the renovations to cost between R300,000 and R400,000, worst case scenario. We are also planning to move overseas within 5 years.

We don't want to overcapitalise. Houses similar to ours in our area are in the market for between R2.2 and R2.4 million. We are trying to ensure our house is the most attractive house on the block. If we run into financial trouble, and we need to rent out the house, we shouldn't have a problem finding tenants. If we want to sell, we offer a better house for a similar price to the "outydse" one down the road. If we don't move out of the country, we will stay in this house. 

Is the pension-backed loan worth it, or should we take the R35,000 out of our emergency/insurance money(for registration costs) and rather take out a second bond? The Ts and C's indicate that should you leave the retirement fund, you can settle it in cash, or they take it from your pension (thinking about tax implications etc, that's the last thing I want to do).

Or should we live with shitty floors and cupboards (and increased spending on sinus meds along with cracked heels) until next year March when we have more certainty on whether there will be salary cuts etc? 

Ndida

How do I use this cost per use on a running shoe bought for R3,000. Do I use the 12 months I have used the shoe or the kilometers I have done? 

I am under debt review working my way to be debt free. I entered debt review in April 2019. In 2016 I bought timeshares with LPA under the impression that I was investing in property. The contract is for seven years until I have paid them in full, plus the annual management fees which are quite steep. I still have five more years to pay. Since I am occupying the place only once per year I am a loser ito cost per use. I am not sure how to untangle myself from this. I am paying a monthly installment of R1,700 and each year there is a seven percent increase.

Wesley

I have a bog standard TFSA with Standard bank that I've been contributing to for 3 years now. I only recently discovered your site and the opportunity to take this long-term investment and use it to buy ETFs to give me a better interest rate than the minor 3.5% I'm getting from Standard Bank.

I want to make this money work harder for me and I don't plan on using it for at least 10 years, probably longer.

Is it possible to transfer this TFSA from SB to a place like EasyEquities and start using it to buy ETFs? Is there any tutorial/how to on this process outlining what I need to do at the bank as well as with EE?

Chris 

I would like to offer the staff some resources to help them with their personal finances, I can offer some help in my personal capacity from what I've learnt from you guys, but can you give some resources/tips on how to deal with reduced income?

The school has applied to TERS from day 1, but those F%^&* have paid us diddly squat, and won't tell us why…