Navigating Investment Waters: Caution And Advice To Young Investors

By Steve Biko Wafula / Published January 29, 2024 | 8:38 pm

KEY POINTS

Knowledge is the best defense against scams. Understanding the basics of investment, the markets, and what realistic returns look like is crucial.

In the world of investment, young people often brim with enthusiasm and a thirst for quick returns. This eagerness, however, can make them vulnerable to scams and fraudulent schemes.

Throughout history, there have been numerous instances where young and inexperienced investors have been the prime targets of financial fraud.

One of the most infamous examples is the Ponzi scheme, named after Charles Ponzi, who, in the 1920s, promised investors in the United States huge profits within short periods. He relied on using the money from new investors to pay earlier investors, creating the illusion of a profitable business. This scheme eventually collapsed, as it always did, leaving many investors, including young and inexperienced ones, with significant losses.

In more recent times, the advent of the internet and social media has only made it easier for scammers to target young investors. One such case is the story of the cryptocurrency ICO (Initial Coin Offering) scams that became prevalent during the 2017 crypto boom. Many young people, drawn by the allure of being part of the next big tech wave, invested in ICOs that promised revolutionary technology and financial returns. Unfortunately, a significant number of these ICOs turned out to be nothing more than elaborate scams.

The rise of influencer culture has also played a role in misleading young investors. Social media influencers often promote stocks, cryptocurrencies, or investment strategies without disclosing their lack of expertise or potential conflicts of interest. The case of the ‘meme stock’ phenomenon, where stocks like GameStop saw their values inflated due to hype on social media, demonstrates how quickly young investors can get caught up in investment mania without understanding the underlying risks.

Another cautionary tale for young investors is the high-yield investment program (HYIP) scams. These programs often promise unsustainably high return rates on investments. They are aggressively promoted online, and while they can seem particularly appealing to those looking to grow their wealth quickly, they are typically unsustainable and often collapse.

To navigate the treacherous waters of investment, young investors are advised to:

Educate Themselves: Knowledge is the best defense against scams. Understanding the basics of investment, the markets, and what realistic returns look like is crucial.

Research Thoroughly: Before investing in anything, it’s important to do due diligence. This includes researching the investment itself, the people behind it, and reading reviews or experiences from other investors.

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Seek Professional Advice: Consulting with a financial advisor can provide young investors with guidance tailored to their circumstances and investment goals.

Be Skeptical: If an investment seems too good to be true, it probably is. High returns with low risk are a red flag for potential fraud.

Understand the Value of Patience: Investing is often a long-term game. Quick returns are rare, and patience pays off.

Beware of Peer Pressure: Just because everyone is investing in something does not mean it’s a wise choice. Each investment decision should be made based on individual research and risk tolerance.

Therefore, while investing can be a powerful tool for building wealth, young investors need to approach it with caution, education, and a healthy dose of skepticism to avoid the pitfalls that have ensnared so many throughout history.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters.He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com

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