The recent banking and financial crises in Ghana have left many people in utter dismay. According to recent reports, more than GH¢8 billion of investor’s hard-earned money got locked up through bad financial investments. This has culminated in untold hardship among many Ghanaians and businesses.
They could have avoided all these terrible mistakes if investors have taken their time to do their homework. The greed of seeing their money doubled in a short time led them. Instead of patiently doing the homework, they rushed with their money and got hurt when the investment/financial institution crashed.
Does that mean you should never invest again? No. It means you should investigate before you invest. Here are the 5 questions you should always ask before making any investment.
Is the Investment Seller Duly Licensed?
Who is selling the investment? Is it a bank, savings & loans, microfinance, mutual fund, or a finance house? Make sure shareholders have registered the investment firm with the Registrar General’s Department and granted an operating license by the Bank of Ghana (banking & financial institutions) or SEC (investment firms).
If they are trading through brokerage firms, check if their brokers also have the due license to operate. Don’t fall for scams. Ensure you do the verification and background checks before proceeding to look at the investment itself.
Is the Investment Product Duly Licensed?
This is a critical one of the key questions you should always ask before making any investment. Every investment product sold in the financial and money market has to pass through a process of verification by the Securities & Exchange Commission (SEC). Upon approval, SEC will license the investment product and it will become a security. A financial security means that the investment has a high amount of surety of keeping the principal invested.
Also, SEC provides details of the security/investment product to the financial market for the public to make well-informed decisions. It is the information gained in the licensing process that serves as a reference for investors to make their investment decisions.
Do you Understand the Investment?
No matter how promising an investment looks, never invest if you don’t know how it works. How does the investment works? Do you understand how the financial institution will grant you a return on your investment? Have you read the investor disclosure and investment documents carefully?
It will surprise you that most people read nothing. They just invest in ignorance. Use the Bank of Ghana Treasury Bill as a standard for analyzing all other investment returns. Don’t get scammed in any investment. Remember, “If it is too good to be true, it is!”
Who is your Investment Advisor?
Professional investors have an investment team. The team selects, analyzes and scrutinizes the investment carefully before any transaction takes place. You should also get an independent and external professional investment advisor before you decide. Licensed professional investment advisors/brokers are always present in the market, studying trends, reading SEC regulations and looking at the newest deals. It will be better to pay for professional guidance than ignorantly invest your way into huge financial losses.
What is your Risk/Reward Ratio?
Every investment you make has a risk and reward potential. The more you read, understand and gain clarity about the investment seller and the product, the more you reduce your risk. Financial education helps to lower your investment risk and increase rewards. However, keep in mind that the higher the probability of huge returns, the higher the risk. That’s why you have to understand the investment before you take action.
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