How To Tell If An Investment Is A Scam (For Malaysians)

Answers to FAQs on scams

“What do you think of XYZ investment? Is it legit or a scam?”

A question I’m starting to get a lot. Difficult. Because as much as it makes me feel like a guru, and I’d like to give Yes/No answers on every investment out there, it’s just not practical. A better solution is to help people develop their own bullshit-detection skills — so they don’t have to rely on others to make decisions.

For this article, I’m using “scam” to describe a scheme that’s designed to cheat people. There’s a difference between this and a bad business decision. Something can be a legitimate investment, and still lose tons of money: Example: ask older people who got burned in the stock markets during the 1997 Asian financial crisis. A story for another day.

Today, we’ll focus on how to detect scams that are out to cheat your money. Here’s my mental checklist for protecting myself — hopefully you’ll be able to use it too.

1. It guarantees returns

First, genuine investments never guarantee profits.

There are exceptions — like fixed deposits in a bank, or an endowment plan from an insurance company. But your guaranteed returns (a.k.a. profits) will always be low. What’s considered low and high? Read on in Point 2.

Other investments that promise you guaranteed returns? BIG RED FLAG.

I know, we’re always looking for certainty and security. But the thing about investing, business, and even life, is there are no guarantees. Accepting this — that there are risks and rewards in everything we do — puts us one step further down the path of wisdom.

2. Unrealistic returns

Not only do scams offer you “guaranteed” profits, they also promise unrealistic numbers. How do you know if something is unrealistic or not? From the looks like it, most people have absolutely no idea. The Securities Commission of Malaysia ran a survey in 2018 with some insane results:

“…investors perceive that an annual return of 12.4% is considered low, 24% as medium and 42.9% as high.”

To put this into perspective, if you consistently earned 12.4% profits every year (what many Malaysians consider low), you would already be considered a “great investor.” As in, you could become a professional money manager, people would pay you disgraceful amounts of money, and your smug face would regularly appear in newspaper columns.

Earn 24% returns annually, and you’re already better than world-famous Warren Buffett and many other “greatest investors” of all time. Make 42.9% a year, and all the greatest investors of all time would be sitting at your feet, trying to learn from you.

Instead, realistic return rates are more like:

  • Mr-Stingy’s expected returns per year
  • Malaysian Banks (Fixed Deposits): 3-4%
  • Bonds: 5-6%
  • Malaysian Government-Related Schemes (e.g. EPF, Amanah Saham): 6-10%
  • Properties: 9%
  • Stock Market: 10%

A few notes on the above. First, these are personal expectations, meaning don’t hate-DM me if your apartment price only increases by 1% this year. Similarly, I’m not saying your favorite stock won’t go up 20% next month.

What I’m saying is, based on my research and experience, these are how I’d expect investments to generally perform. Like if I put money in the stock market, and keep making 10% losses every year, I know I’m doing something wrong. On the flip side, if the EPF declares dividends of 8% this year, I’ll rejoice — but also know it’s above expectations.

“What about Unit Trusts,” you ask? Well because unit trusts (a.k.a. mutual funds) typically invest in some combination of bonds and stocks — I’d expect similar results. For example, I’d expect a unit trust that invests mostly in stocks to return around 10% per year.

Of course, I’m oversimplifying things here. An entire library of books could be written around investment returns, but I just wanted enough info to help set realistic expectations. Investing is a get-rich-slowly thing. Notice how “expected returns” never goes above 10%?

This is how we know your long-lost friend’s “business opportunity of the future” promising 20% per month is a scam.

3. It asks you to recruit members to get paid

A legitimate investment doesn’t need you to sign up another 3 people for you to get paid. That’s a red flag which happens with pyramid schemes. Because if you think about it logically, why does the business need you to “recruit” people?

If they’re really investing your money, all you need to do is give them money and wait. Nothing else. No such nonsense like “If you get 3 people under you, then you get 7.5% of their profits also. And if they get 3 people under them, then you get 3.75% of the downline profits too! EVERYONE WINS!!!”

Unless of course, it’s really what’s known as a Ponzi scheme, where new investors’ money is used to pay earlier investors. Which goes on and on until there’s not enough new investors — then everything collapses and we see “Retired housewife loses life savings in money game” headlines. When the music stops, people get exposed.

Caveat: You know those “Sign up with my promo code and we’ll both get RM10” messages you keep receiving? Annoying, but definitely legal. The difference is, promo codes are usually a small amount (~RM10), but even if you don’t refer anyone at all, you can still use the platform, invest money and earn profits same as everyone else.

“Then what about multilevel (network) marketing,” you ask? Well those need you to actively work to earn money. Investing for me refers to something much more passive: parking your money, and letting it automatically generate profits (with a risk of losses) for you. I’d consider MLMs more of a side hustle — one that historically most people don’t earn good money from — but technically legal if they follow the rules.

Just be very careful, because scammers like to mix MLM elements into their “investment” proposals, which makes it more confusing for everyone and harder to evaluate. Wouldn’t it be helpful if the authorities did something?

Which brings me to…

4. There’s no regulation

There’s actually a “life hack” to all this. If you’re still confused, not interested in how to detect lies (really?), or just want an easy answer, here goes: only invest in things regulated by the government.

Yeah, I know — if you’re a sophisticated investor, it’s possible to make money trading 100x-leveraged USD digital oil futures on an exchange owned by a shell company in Seychelles. But the majority of people are not sophisticated investors. We just don’t have the time, knowledge and expertise to understand such complex instruments.

Hence, it makes sense for most people to take the safe route. The good news is there’s tons of approved investment platforms here in Malaysia. Whether you wanna invest in stocks, bonds, ETFs, properties, peer-to-peer financing or even something as exotic as Bitcoin — you can check whether the company you’re investing with is regulated:

Regulation means in case something goes wrong (e.g. the founders of the company steal your money, or your personal data gets hacked), the government actually has power to help you. But if you invest in something unregulated, it’s extremely difficult for the authorities to go after the bad guys.

And just in case you’re super risk-averse, the Malaysian government also keeps track of unauthorized money-related schemes via Bank Negara here and the Securities Commission here. (Don’t invest in those.)

5. It uses unethical sales tactics

Another tell-tale sign of a scam is unethical sales tactics. The heartbreaking thing is these tactics work, especially on the poor and needy.

Some examples:

  • Social pressure: They bring you to a grand “conference” where there’s tons of creepily-high-energy-well-dressed people who wanna be your friends. Worse if your existing friends bring you there. Suddenly there’s a sales session where everyone is saying “YES!” and “investing.” Don’t you feel left out if you don’t buy too? #FOMO
  • High pressure: The salesperson doesn’t take no for an answer. Keeps asking for reasons and doesn’t respect your decision. Keeps pressuring you to immediately say yes. If they fail to persuade you, they pass you on to their boss for #Round2 of convincing. Many events have a standard #Round3.
  • Isolation: “This special offer is only for you. But you can’t tell anyone about it, not even your husband or family — because they won’t understand. That’s why it’s special. You have to keep it a secret.”

The above tactics are shady at best, criminal at worst. They’re also usually presented with urgency: “Limited offer today! BUY NOW OR YOU’LL LOSE OUT!!!” Combined, these psychological tricks are often strong enough to make even smart people do stupid shit with their money.

Remember, investing is a business decision. It’s about numbers and dollars, and you should always take time to think carefully. It should feel boring. You’re not joining a cult or falling in love. If you feel emotional, run away.

6. The business model doesn’t make sense

I left this one for last because it’s the toughest. It takes some business knowledge and experience to understand if something has a proper business model — where people can legally and ethically make profits.

Because if it’s a scam: look deep enough into the fine print and business structure — and you’ll discover all kinds of alarming things.

Don’t be fooled by complexity. The legitimate people in this world try to simplify things for normal people. It’s conmen who try to confuse.

If you have interest in business and investments, over time you’ll build your analytical skills here. If not, refer to Section 4.

But if ever in doubt, here’s a fundamental principle which will serve you well:

If you can’t understand it, you shouldn’t invest in it.

Conclusion: Why people fall for investment scams

Investment scams happen because people want to believe in the sweet lies scammers sell. People want to believe it’s possible to earn big money in a short time. People want to believe they should get paid without producing any value. And people want to believe there’s an easy way out from their problems.

Yeah, there’s probably some greed there. But in our world of instant gratification and Insta-materialism, can you really blame people for wanting to upgrade their lives? It’s almost ingrained in our human nature.

The deeper issue I think, is most people today feel stuck. What everyone is actually looking for is hope. Money; quick, easy money seems like the solution.

But maybe the real solutions can be found in good, old-fashioned principles.

Lessons from history that can still guide us today: Success, in money, business and life takes time. Building wealth requires discipline and hard work. And unfortunately, there will always be scammers and people who get scammed, because they wanted fast money.

Thankfully, you won’t be one of them.

Aaron Tang is the founder of He writes about optimising time, money, and relationships – to make the most out of life.

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