Be wary of 'too good to be true' investments

The CEO of Databank, Kojo Addae-Mensah, has encouraged the general public to embrace investment, but warned investors to be cautious when dealing with companies that promise monstrous returns.

Mr Addae-Mensah, who spoke in an interview with Class News, explained that traditional banks offer smaller profits on investments, but several companies have now sprung up promising huge returns.

According to him, opting to invest in products with high returns goes with high risks, thus individuals should invest with caution, by first checking on the credibility of the institution.

“People are taking advantage of Ghanaians and saying that I can give you more [on investments], but you have to be careful,” he counselled.

“Bear in mind that the government of Ghana's risk-free instrument is returning you, say, currently, for the 91-day, a 23% yield per annum. If you divide that by 12 months, it will give you about 2% in simple terms. So, if someone says: ‘I am giving you a return of 8%, 10%, 12% a month’, you have to check yourself; meaning there is a huge risk”.

According to him, taking a big risk can yield a big return over a long period of time, and a low risk will yield a low return, but was quick to outline a few steps anyone should follow before investing with any financial firm.

Before investing, Mr Addae-Mensah said: “You must check the track-record of the company. Secondly, you must check the number of years …the company has been in operation. Thirdly, do a background check on their staff, fund managers, what they have been able to do, and what they are capable of doing. Furthermore, check their governance structure – whether they have a board or it is a family business.”

Recently the Bank of Ghana had to shut down some microfinance companies in the Brong Ahafo Region for diverting investors’ money into their own private businesses, in contravention to the rules and regulations of the central bank. The situation has led to the lock-up of huge investments of hundreds of individuals in the region. Most of them invested in DKM Diamond Microfinance Company Limited as well as other fund clubs such as God is Love.

The companies are currently being investigated by the Bureau of National Investigations and their assets frozen.

Minority Members of Parliament claimed 45 clients of those microfinance firms died, as a result of frustrations they endured in their failed attempt to retrieve their investments worth about GHS1billion in total.

Mr Addae-Mensah, who explained a little about Databank’s operations, said the 25-year-old investment bank employs competent and credible people for its operations.

He underscored the need to be disciplined and consistent, especially with long-term instruments, which have yielded good rewards over a long period of time, even though there could be losses sometimes.

“Take an equity like Epack. We invest in various stock markets, in one year you can hit 60% depending on the performance of the company you are investing in, but in another year, it can drop to negative,” he added.

“That is a high risk, but you need patience over a long-term period. Evidence has proven that over a five-year period there is no way you are going to lose.”