Nowadays investing is easier than ever. A whole range of new platforms have appeared in the last few years; many promoting ways of investing that before were available only to those with lots of money or investment-savvy.
There are automatic solutions, investment bots, click and drag options and complex dashboards for different assets available to all kinds of investors. But with so many options and excitement around these platforms, we can forget that every investment comes with… risk.
How do you evaluate the risk of investing with a specific platform? How do you know if you can trust an investment offering? Here are 7 ways to spot a trustworthy investment platform:
1. Have they been around long enough?
All investment platforms were once new. So, it’s not that all new platforms are bad, but ones with a solid track-record tend to be safer options. Before investing, research when the platform was launched and check their performance history. For example: Did they face and survive the 2008 financial crash? How was their performance and transparency during the corona crisis? These are good parameters of how they handle crises, which gives you an idea of how capable they are of navigating through stormy situations.
2. Do they have an open data policy?
Transparency is everything. If someone hides facts from you, you’ll get suspicious and begin to distrust that person. The same goes for online investment platforms.
If a platform doesn’t give you a way to check up-to-date numbers easily, chances are they might be uncomfortable with those numbers. Remember that saying: “If you have nothing to hide, you have nothing to fear”.
Research whether the platform has a public statistics page and if they proactively publish summaries of that data for their customers, for example with blog posts going granular into key metrics.
An extra tip: Does their CEO appear frequently to the public? Does the platform publish answers to difficult questions during uncertain times? If “no” is the answer for all of these, then you have a red flag right there.
3. What do people say about them?
Reviews are the online equivalent of word-of-mouth communication. And trusted review platforms offer legitimate opinions of real customers. Trustpilot is a well-known and legitimate review site in Europe. You can research your chosen investment platform there, or on other review websites, and see what people are complaining about or complimenting the platform for.
It’s also a good idea to determine the sentiment regarding the platform inside the community. You can read up on different bloggers’ experiences and opinions, or watch videos from several different channels. Hearing other people’s opinions can help you make up your own mind.
You can also find online forums where real people are talking about their real experiences. Simply Google the name of the platform + “forum” and see what people have to say.
4. Who is the team?
Do you know who is the CEO running the company? If not, can you easily find information about them and their top level management team?
Problems within online investing recently shed a light on this matter. If it’s not clear to everyone who is running the show, then that’s a major red flag. Think about it: Why would you hide the owners or directors of a company if the company is legit?
So go ahead and Google their team. Can you find them anywhere? Do they have real profiles on LinkedIn? Have they been with the company for a long time or just recently joined to put out fires? Can you find interviews they have given to reputable newspapers, blogs, channels? If not, it’s another red flag.
5. Do their finances make sense?
Needless to say, companies in difficult financial positions might not be able to operate for long. But at the same time, many new startups operate with losses for years until they become big enough to turn a profit. So although this type of analysis could potentially be subjective, some truths simply cannot be hidden (Wirecard, for example).
So before investing, make sure to research how healthy the company is financially. Do they have enough capital? Have they been profitable in the past couple of years? Do they release their financial results or hide it? How much do they owe in debt, and what assets do they have? Are they firing people to lower costs or growing their team? If the company isn’t doing well, chances are you’re better off investing elsewhere.
6. Remember: No investment is risk-free
Keep an eye out for promises that are too good to be true. If the company offers gigantic returns that are “low risk”, be suspicious. All investments have some sort of risk, and you should pay attention to whatever “zero risks” or “guarantees” are offered.
Do they specify which risks you are taking? Do they explain exactly how the guarantees work and can they back up these guarantee promises? Are their Risk Statements clear and easily accessible for investors to read?
7. How is their support?
Automated support centers and AI-based FAQs are awesome and can provide tremendous help to investors. However, there are always some cases here and there that need special attention, when a link to a support article is not enough. When you find yourself in one of these cases, can you talk to someone, a real person? Do they have a real, human support team that you can talk to? Or you are only and solely redirected to bots and static pages without anyone to help you with your problems?
That’s a major red flag. You don’t want to be locked out of human support when your withdrawal goes wrong or you cannot make sense of the numbers on your portfolio.
The bottom line is:
Regardless of where you want to invest, make sure to do your own research first:
- Read reviews and opinions from other investors
- Make sure that the company’s team exists
- Find out if they are experienced or just started recently
- Check if they provide public statistics
- Are their promises too good to be true?
- Look for their financial reports
- Can you talk to a real support person if needed?
If you use these 7 points as a guideline, you can take a more informed investment decision and have more peace of mind that your money is safe and working for you. Happy investing!
