When someone tells you about an investment opportunity, what is the first thing you ask?
For most of us, it is probably some version of:
“How much will I make?”
Fair question. Returns matter.
But before you get excited about 12%, 18%, 25% or whatever number has been placed in front of you, there is another set of questions that matters just as much: Who am I giving my money to? Where will it actually go? How is the return generated? And how do I get my money back?
A good investment decision is not just about finding the highest return. It is also about understanding what you are getting into.
Here are five checks worth making before anyone touches your money.
1. Are they actually licensed?
Someone having a nice office, a convincing website, thousands of followers or a friend who “has been investing with them for years” does not tell you whether they are licensed to offer the investment they are selling you.
Check.
In Kenya, the Capital Markets Authority (CMA) regulates various participants in the capital markets and publishes information on licensed entities.
Do not simply ask someone, “Are you licensed?” and accept a yes.
Find out which entity is licensed, what it is licensed to do and whether that licence covers the product or service being offered to you.
There is a difference between a company existing legally and that company being authorised to carry out a particular investment activity.
A five-minute check can save you a very expensive lesson later.
2. Can they explain where your return comes from?
Imagine someone tells you:
“Give us KES 100,000 and we will give you a 20% return.”
Your next question should be:
How?
Not because a high return automatically means something is wrong, but because every legitimate investment return has to come from somewhere.
If you invest in a bond, for example, you are essentially lending money to an issuer and receiving interest in return. With shares, your return may come from dividends and/or an increase in the value of the shares. With a fund, your money may be invested across different assets, and your return depends on how those underlying investments perform.
Different investments have different engines.
You do not need to become an investment analyst before putting your money somewhere, but the person offering the investment should be able to explain, in reasonably plain language, what your money is invested in and how that investment is expected to make money.
If you ask a simple question and receive five minutes of complicated financial vocabulary without actually getting an answer, keep asking.
Complex investment does not have to mean incomprehensible investment.
3. Who actually holds your money?
This question is easy to overlook.
You may know who is managing your investment, but who is actually holding the money or assets?
In many regulated investment structures, these responsibilities are separated. You may have a fund manager making investment decisions while a custodian holds the assets.
That separation matters.
It creates additional checks around how investor assets are handled rather than leaving every part of the process under the control of one party.
Before investing, understand the flow of your money.
Where are you sending it? In whose name is the account? Who is the custodian? Where are the underlying assets held? What evidence will you receive showing your ownership or investment?
You should be able to follow your money from your bank account to the investment without relying on “trust me.”
Trust is nice. Structure is better.
4. How do you leave, how long does it take, and what does it cost?
We spend a lot of time asking how to enter investments and surprisingly little time asking how to leave them.
Before investing, ask what happens when you want your money back.
Can you withdraw whenever you want? Is there a lock-in period? Do you need to give notice? Does the investment have to be sold first? How many days does withdrawal take? Are there penalties or charges for leaving early?
Consider two investments promising similar returns.
Investment A allows you to access your money within a few working days.
Investment B locks your money away for twelve months and charges you if you exit early.
Those are not the same investment experience, even if the headline return looks identical.
This is particularly important when investing money that you might need soon.
A good return means very little if you discover during an emergency that your money is inaccessible for another six months.
Know the exit before you enter.
5. Is everything actually in writing?
Statements. Receipts. Contracts. Application forms. Terms and conditions.
Keep them.
If someone tells you there are “no fees,” ask where that appears in the documentation.
If they promise you can withdraw within three days, check the actual withdrawal terms.
If they tell you your investment is guaranteed, ask exactly what is guaranteed, by whom, and where that guarantee is documented.
A WhatsApp conversation may help you remember what someone said, but it should not be the foundation of an investment relationship.
Your documentation should clearly identify you as the investor and help you understand important information such as the amount invested, fees, risks, withdrawal terms and the parties involved.
And yes, reading investment documents can be boring.
Losing money because you did not read them is considerably more boring.
One more check: How are they making you feel?
This one is less technical, but it matters.
Be cautious when an investment opportunity depends heavily on pressure, speed or secrecy.
“You need to send the money today.”
“Don’t tell too many people about this opportunity.”
“This offer closes in two hours.”
“Everyone else is already investing.”
Urgency can make us skip the very checks we would normally make.
A legitimate investment may have a deadline, but a deadline should not prevent you from understanding what you are buying.
You are allowed to ask questions. You are allowed to request documentation. You are allowed to verify information independently. And you are allowed to walk away.
Before you send the money
Investing will always involve some level of risk. The goal of these checks is not to find an investment where nothing can ever go wrong.
It is to make sure you understand what can go wrong, who you are dealing with, where your money is going and what rights you have if you want it back.
So the next time someone presents an exciting investment opportunity, resist the temptation to start with:
“How much can I make?”
Start with:
Who are you?
Are you licensed to do this?
How exactly does this investment make money?
Who holds my money?
How do I get out?
And where is all of this written down?
If the answers are clear, you can move on to analysing whether the investment itself makes sense for you.
If the answers are fuzzy, your money does not need to be.
