As the cost of living keeps skyrocketing and interest rates increase again, household income continues to be under immense financial pressure. Sadly, this situation forces Basotho to look for alternative ways to keep up and make ends meet. The consequence of the difficult economic times is an increase in pyramid schemes preying on the most vulnerable.
I am saddened by several social media posts where people who invested in a pyramid scheme lost their savings, investments and pension monies.
In this week’s article, I hope to remind Basotho about investing principles to help them avoid falling prey to pyramid schemes.
In previous Leruo articles titled ‘Investment planning considerations‘ and ‘Investment planning – Understanding Asset classes‘ available on www.thereporter.co.ls I highlighted things to consider and questions to ask yourself before making investment decisions.
- What investment goal do you hope to achieve?
It is important to have well-defined investment goals that are SMART – specific, measurable, attainable, realistic and time-bound. Examples of investment goals include preserving your capital, earning income from your investments or capital growth.
- Do you have a plan to achieve this investment goal?
An important part of the investment plan is an investment policy statement (IPS) that outlines how you plan to achieve your goals. The IPS outlines the investment objectives, goals and strategies that will help you achieve your financial goals. Consult a qualified financial planner to help you.
- How much risk are you willing to take?
It is key to remember that it takes time to build wealth and that there are no guarantees when it comes to investing. Define how much risk you are willing to take and identify your risk appetite and tolerance. Similarly, it is important to describe how much growth you are expecting in your investments, often referred to as the risk/return trade-off. How much risk are your prepared to take to achieve the expected growth?
- Is the institution you are investing with registered and licensed?
I have written a lot about doing business with registered and licensed financial service providers. Unfortunately, should you invest your hard-earned money with an institution that is not licensed, and you lose your money, chances of being protected and getting your money back are rare. Visit the Central Bank of Lesotho (CBL)’s website at https://www.centralbank.org.ls for a list of all licensed Financial Service Providers (FSPs).
- How much research have you done?
Generally, investing can be intimidating and mentally overwhelming. Let’s also not forget about the emotions at play when it comes to investing. Doing thorough research before making financial decisions is important. Fortunately, there is a lot of well-researched literature and resources available that can help you navigate the complicated investment landscape and make informed decisions.
The tips I have shared in this article are only the tip of an iceberg because there are so many things to consider before investing. My goal this week is to encourage you to do thorough research and seek professional financial advice before making any investment decisions. There is no shortcut towards building wealth – it takes strategy, time and disciple. Stop being a victim of pyramid schemes and giving unlicensed institutions your hard-earned money!
