Understanding Legitimate Investments vs. Scams

In the aftermath of the CBEX investment scandal, many Nigerians are questioning how to identify legitimate investment opportunities. Before putting your money into any scheme, ask yourself this fundamental question: "Why do companies need investors' money in the first place?" This simple inquiry can be your first line of defense against scams.

Unfortunately, many Nigerians have a limited understanding of investments, often reducing it to "put your money in XYZ and get X% ROI after X months." This oversimplification makes many vulnerable to fraudsters. Let's explore what genuine investments actually look like.

The True Purpose of Investment

Think of investment as leverage. If you're speaking to 10 people in a room, you don't need a microphone. But addressing 5,000 people requires amplification. Similarly, investor funds help companies amplify their business operations and growth potential.

This is precisely why companies list shares on the stock market. Investors buy these shares, providing capital that fuels business growth. In return, investors profit either through dividends or by selling their shares at higher prices than their purchase cost.

When you invest in a company, you're essentially funding its growth journey. But how can you distinguish between legitimate opportunities and scams? While it can be challenging, here are some critical guidelines:

Key Factors to Evaluate Before Investing

1. Management Credibility

Many potential investors fixate on ROI percentages while ignoring who's running the company. The management team's competence directly affects the company's ability to deliver promised returns. Remember: you're investing in the management as much as the business itself.

If you're unconvinced about the CEO's track record or credibility, don't bother investigating the company further. There's a reason why people eagerly invest in businesses led by established names like Dangote, Elumelu, or Otedola – their proven track records inspire confidence.

2. Business Model Viability

This is another area where many Nigerians fail to conduct proper due diligence. Don't be swayed by flashy social media promotions. Instead, thoroughly examine the nature of the business:

  • Is there a genuine market for their products or services?

  • How large and profitable is this market?

  • Does the business model make logical sense?

Understanding these aspects will help you determine if the business can realistically generate the returns promised to investors.

3. Realistic Return on Investment

This should be your final consideration, yet most Nigerians make it their primary focus. If an investment promises returns that sound too good to be true, they probably are. CBEX reportedly offered 100% returns monthly, yet people still invested their hard-earned money.

Any investment guaranteeing 50% or higher annual returns is likely either fraudulent or unsustainable. For perspective, Treasury Bills – among the most stable investment vehicles in Nigeria – don't even offer 30% annual returns. Be extremely cautious of schemes promising extraordinary profits.

4. Marketing and Public Relations Approach

Be wary of companies engaging in excessive PR campaigns, especially through questionable media channels. If their communications focus primarily on ROI and recruiting "partners" (a euphemism for investors) rather than explaining their business operations and sustainability strategies, consider this a red flag.

Legitimate businesses typically emphasize their products, services, and growth plans rather than constantly seeking funds without substantial discussion of their actual business activities.

5. Regulatory Compliance Claims

Be suspicious of non-financial companies that loudly advertise their registration with CAC, EFCC, or SEC. While regulatory compliance is important, legitimate businesses don't typically use these registrations as their primary selling point.

Remember that official documentation doesn't automatically validate a business's legitimacy. Anyone can register a company with the Corporate Affairs Commission (CAC), but this alone doesn't guarantee ethical operations or financial stability.

Protecting Your Financial Future

Investment scams continue to evolve in Nigeria, becoming increasingly sophisticated. By applying these guidelines, you can better protect yourself from fraudulent schemes that promise unrealistic returns while delivering nothing but financial heartbreak.

Before committing your money, always conduct thorough research, seek advice from financial professionals, and remember that sustainable wealth-building typically happens gradually rather than overnight. The most reliable investments may not be the most exciting, but they'll help secure your financial future without the devastating losses that come with scams.

If it sounds too good to be true, it probably is. Take time to think, think again, and think once more before investing your hard-earned money.