What Should You Check Before Buying an Investment?

Introduction

Before putting your money into an investment, it is worth asking a simple question: do you understand what you are buying, what could go wrong and how you expect to make money?

An investment may look attractive because of its advertised returns, a friend's recommendation, a social media post or the reputation of the person promoting it. However, none of these factors alone proves that the investment is suitable, fairly priced or safe.

The decision requires more than looking at the potential profit. You need to examine the investment itself, the people offering it, the risks involved, the costs you will pay and how easily you can access your money when circumstances change.

This is particularly important in Nigeria, where investment opportunities may be promoted through social media, messaging applications, websites and personal networks. The Securities and Exchange Commission (SEC) Nigeria has warned the public about unregistered online investment schemes and opportunities promising unrealistic or guaranteed returns.

You can read the SEC's public notice on unregistered online investment schemes for further guidance.

 

So, before buying an investment, what should you check?

1. Understand What You Are Actually Buying

The first question is not how much you could earn. It is what you are investing in.

Are you buying shares in a company, lending money to a business, purchasing a bond, investing through a fund, acquiring property or participating in another type of investment?

Each investment works differently. The source of its potential return, the risks involved and the conditions governing your money will depend on its structure.

For example, a shareholder may benefit if a company's share price rises or if the company pays dividends. A bond investor may receive interest according to the bond's terms, while a property investor may expect rental income or a gain from selling the property.

These outcomes are not guaranteed. A company can perform poorly, a bond issuer may fail to meet its obligations, property may take longer to sell than expected, and an investment's market value may fall.

Before committing your money, find clear answers to these questions:

• What exactly am I buying?
• How is the investment expected to generate returns?
• What business, asset or financial activity supports those returns?
• Who is responsible for managing the investment?
• What documents explain my rights and obligations?
• Under what conditions could I lose some or all of my money?

If the promoter cannot explain the investment clearly, or you cannot understand how it works after reviewing the available information, pause before proceeding.

My take: An investment should be understandable before it becomes attractive. If you cannot explain in simple terms how it is supposed to make money, you may not yet have enough information to make an informed decision.

2. Verify the Company, Platform and Investment Professional

An investment opportunity can be presented professionally and still require further investigation.

A polished website, an impressive office, a large social media following or persuasive testimonials do not establish that a company is authorised to offer a particular investment service.

In Nigeria, the SEC provides resources that allow investors to check the registration status of capital market operators.

Before investing, use the SEC's Find a Registered Operator service and other relevant official records to verify the identity and regulatory status of the company or professional involved.

Check that the registration applies to the actual entity you are dealing with and covers the activity it is offering. Where necessary, confirm the information directly with the relevant regulator.

Also check:

• The company's full legal name and identity.
• Its registered business address and official contact details.
• The identity of the people responsible for the investment.
• The regulatory status of the platform and any intermediary.
• Whether the investment documents identify the parties responsible for managing your money.
• Whether the bank account receiving your payment belongs to the stated company or another clearly explained, verifiable party.

Be particularly careful when a promoter uses a legitimate company's name but directs you to an unrelated website, personal account or unofficial payment channel.

One important distinction is that verifying a provider's registration does not guarantee that an investment will make money or that you cannot lose your capital. Registration checks are an essential part of due diligence, not a substitute for examining the investment's terms and risks.

3. Examine the Promised Returns and the Risks

Potential returns matter, but they should always be considered alongside the possibility of loss.

Suppose two opportunities are presented to you. One offers a modest projected return with clearly explained risks. The other promises a much higher return and claims that your capital is completely safe.

It may be tempting to prefer the second option. However, a higher promised return does not automatically make an investment better.

Ask how the return is generated, what assumptions support it and what could prevent the expected result from being achieved.

Consider the following questions:

• Is the return fixed by a clearly documented contractual arrangement, variable, or merely projected?
• What conditions must be met before the return can be earned?
• What happens if the underlying business performs poorly?
• Can the value of the investment fall?
• Could the issuer or borrower fail to meet its obligations?
• Is the advertised return quoted before or after fees, taxes and other applicable costs?
• What evidence supports the claims being made?

Be cautious of promises of unusually high returns with little or no risk, particularly when you are told that an opportunity cannot lose money.

The SEC Nigeria's warning on unregistered online schemes specifically advises investors to avoid unregistered platforms promising unrealistic or guaranteed returns. Its investor FAQ on Ponzi and pyramid schemes also explains common warning signs.

Remember that risk does not disappear because an investment has paid returns in the past or because other people claim to have made money from it.

A useful rule: Do not assess an investment only by asking how much you could earn. Ask how much you could lose, what could cause that loss and whether you can afford the consequences.

4. Understand All the Fees and Charges

An investment may appear profitable before costs but deliver a lower return after fees and expenses.

Depending on the investment, you may encounter transaction charges, management fees, account maintenance fees, custody charges, withdrawal penalties, currency conversion costs or taxes.

The applicable charges vary by investment and provider, so do not assume that every investment has the same cost structure.

Before investing, ask for a clear explanation of the costs involved in buying, holding and selling the investment.

For example, imagine you invest ₦500,000 and the investment increases in value by 10% over a year.

A 10% gross gain would be:

₦500,000 × 10% = ₦50,000.

The investment would then be worth ₦550,000 before fees, taxes and other applicable costs.

If the total costs were ₦10,000, the amount remaining would be ₦540,000, assuming no other changes or charges. Your net gain would be ₦40,000, equivalent to 8% of the original investment.

This is an illustration, not a forecast of investment performance.

The point is simple: the return you see advertised may not be the amount you actually keep.

The US Securities and Exchange Commission's Investor.gov resource explains how investment fees affect portfolio value over time. Although its examples and rules may be US-specific, the general principle that costs reduce returns is relevant when evaluating investment expenses in any market.

Read its guide to understanding investment fees.

5. Check When and How You Can Access Your Money

An investment can have an attractive potential return but still be unsuitable if you cannot access your money when you need it.

This is the question of liquidity.

Some investments can be sold relatively easily, although their market prices may fluctuate. Others may require a buyer to be found, a withdrawal period to expire or specific conditions to be met before your money can be released.

Property, certain private investments and products with restrictions on early withdrawal may be harder to convert into cash quickly than actively traded investments. Even an investment that can usually be sold may become harder to sell under unfavourable market conditions.

Before investing, ask:

• Can I withdraw or sell whenever I choose?
• Is there a minimum holding period?
• Are there withdrawal fees or penalties?
• Could my money be locked in for a specified period?
• Is there an active market for the investment?
• What happens if many investors try to withdraw at the same time?
• How long could it reasonably take to receive the proceeds?

These questions matter because your financial circumstances can change.

You might need money for medical expenses, school fees, business obligations, family responsibilities or another urgent commitment. An investment that prevents you from accessing the funds when needed may create financial pressure even if its long-term prospects appear promising.

For more background, see Investor.gov's explanation of investment liquidity.

My take: Do not judge an investment by its potential return alone. Consider whether the conditions for accessing your money fit the purpose and timeframe for which you are investing.

6. Consider Whether the Investment Fits Your Financial Goals

An investment can be legitimate and still be wrong for you.

The right choice depends partly on what you want the money to achieve, when you expect to need it and how much risk you can reasonably accept.

For example, money intended for a near-term expense generally requires a different approach from money being invested for a long-term goal.

If you expect to need the funds soon, an investment whose value can fluctuate significantly or that restricts withdrawals may expose you to a risk you cannot comfortably manage.

If your goal is many years away, you may have more time to withstand market fluctuations, depending on your circumstances and the investment involved. A longer timeframe, however, does not eliminate risk.

Before investing, consider your existing financial commitments, emergency needs, outstanding high-cost debt and the consequences of losing the money.

Ask yourself:

• What is the purpose of this investment?
• When will I need the money?
• Can I afford to leave it invested for the expected period?
• What would happen if its value fell?
• Would a loss affect essential expenses or other financial goals?
• Does this investment complement or concentrate the risks in my existing portfolio?

These questions help you distinguish between an investment that looks attractive in isolation and one that fits your broader financial position.

Investor.gov provides additional guidance on asset allocation and diversification, including the role of investment timeframe and risk tolerance.

7. Examine the Documents Before Making Payment

Do not rely only on what a promoter tells you in a conversation.

Request and review the relevant documents explaining the investment's structure, terms, costs, risks and exit conditions.

Depending on the product, these may include an offer document, prospectus, contract, product disclosure statement, fund information document or other formal agreement.

The appropriate documents will depend on the type of investment and the applicable rules.

Pay particular attention to:

• The identity of the issuer or investment provider.
• The rights you receive in exchange for your money.
• The basis for calculating returns.
• The fees and other costs.
• The conditions under which the investment can be sold or redeemed.
• Any restrictions, penalties or additional obligations.
• The circumstances in which you could lose your capital.
• The process for raising a complaint or resolving a dispute.

Do not sign documents you do not understand or rely on verbal assurances that contradict the written terms.

If important information is missing, inconsistent or difficult to verify, request clarification before proceeding.

Where the investment is complex or the amount is significant relative to your finances, consider obtaining independent professional advice from a suitably qualified person who is not relying on the sale to earn a commission.

Keeping proper records matters - In wealth management, poor record-keeping often starts with manual data entry overload. I explained how to reduce this risk in my guide on how to reduce manual data entry in wealth management

8. Look Beyond Popularity and Testimonials

A common mistake is to treat other people's enthusiasm as proof that an investment is sound.

You may hear that a friend has earned a return, a social media personality recommends a platform, or several people in a group claim to be making money.

Such information can prompt you to investigate an opportunity, but it cannot replace independent verification.

A testimonial may describe a genuine experience, but it may not show the full risks, costs or circumstances. It may also be outdated, incomplete or unrepresentative of what other investors will experience.

Consider these questions:

• Is the person promoting the investment being paid or rewarded for referrals?
• Are the claims supported by verifiable documents?
• Are the returns independently documented?
• Can you confirm the information through sources that do not benefit from your decision?
• Are you being encouraged to invest because the opportunity suits your goals, or because you fear missing out?

The last question is particularly important.

When an opportunity is presented as something everyone is buying, you may feel pressure to act before you have completed your checks. That pressure can interfere with sound judgement.

The SEC's investor education materials identify unrealistic returns, recruitment-based schemes and other warning signs that warrant caution. You can review its guidance on distinguishing Ponzi schemes from registered fund and portfolio managers.

Do not allow popularity to replace evidence.

 

What Many Investors May Overlook Before Investing

Investment discussions often focus on how much money someone could make. Several other questions deserve equal attention.

The exit may matter as much as the entry

Before committing your money, understand how you will leave the investment.

A clear entry process does not necessarily mean there is an easy exit. Find out whether you can sell, withdraw or redeem your investment, and under what conditions.

A return is not the same as money in your pocket

An investment may show an increase in value without providing cash you can immediately spend. You may need to sell the asset before realising a gain, and the eventual selling price may differ from the value shown on a statement or app.

Likewise, an advertised return may be quoted before costs or may depend on assumptions that do not materialise.

A legitimate provider does not remove investment risk

Verification is essential, but it is not a guarantee of profitability. Even investments offered through legitimate, properly regulated channels can lose value or fail to meet expectations.

Investors still need to understand the product and assess whether its risks suit their circumstances.

You should know what would make you change your mind

Before investing, identify the conditions that would cause you to reconsider the decision.

For example, new information about the issuer, a change in the investment's terms, deteriorating business performance or a loss of confidence in the underlying assumptions may justify further review.

This does not mean reacting to every short-term market movement. It means deciding in advance which developments are important to your original investment case.

Sometimes, waiting is a valid decision

There is no requirement to invest in every opportunity that comes your way.

If you cannot verify the provider, understand the product or determine how the return is generated, you may need more information before making a decision.

Missing an opportunity can be disappointing. Committing money to something you do not understand can have more serious consequences.

These are practical lessons drawn from investor-protection guidance and financial decision-making principles, rather than claims that every investor overlooks these issues.

 

An Accountant's Perspective: Look Beyond the Promised Return

My experience in accounting, financial reporting, budgeting and treasury management has taught me the importance of looking beyond a single figure before making a financial decision.

In financial management, one number rarely tells the entire story. A figure needs to be understood in context, compared with relevant information and examined alongside the assumptions behind it.

The same principle applies when evaluating an investment.

A projected return may look attractive, but I would want to understand the basis for that projection, the costs involved, the risks that could affect the outcome and the conditions under which the investor can recover the money.

I would also consider the investment in relation to the person's wider financial position. Money committed to an investment should not automatically be treated as available for essential expenses or urgent obligations.

For example, an investment might appear attractive on paper but require the investor to lock away funds that could be needed for a business payment or a family commitment. The potential return does not tell us whether accepting that restriction is sensible for that person.

My approach is to ask questions, examine the available evidence and compare the potential benefits with the risks and obligations.

I also believe that keeping proper records matters. Investors should retain relevant agreements, receipts, transaction confirmations and statements. These records can help them monitor performance, reconcile transactions and resolve disputes if problems arise.

My professional view is that a sound investment decision should be based on evidence, affordability, risk and purpose, not on the promised return alone.

 

A Practical Investment Checklist

Before committing your money, use the following checklist to review the opportunity.

• I understand what the investment is and how it is expected to generate returns.
• I have verified the identity and relevant regulatory status of the provider.
• I understand the possibility of losing some or all of my money.
• I have checked the fees, charges and other applicable costs.
• I understand the withdrawal, selling or exit conditions.
• I have reviewed the relevant documents and contractual terms.
• I have checked the claims using independent, reliable sources.
• I understand how the investment fits my goals and timeframe.
• I can manage the financial consequences if the investment performs poorly.
• I have kept the relevant documents and payment records.

If you cannot answer several of these questions, do not treat the uncertainty as a minor detail. Identify the missing information and resolve it before proceeding.

The checklist does not guarantee that an investment will succeed. Its purpose is to help you identify important questions before you put your money at risk.

 

Frequently Asked Questions

What is the first thing to check before buying an investment?

Start by understanding what you are buying and how it is expected to generate returns. Then verify the provider, examine the risks and review the terms before committing your money.

How can I check whether an investment company is registered in Nigeria?

Use the relevant official regulatory records. For capital market operators, the SEC Nigeria provides a registered operator search service. Confirm that the registration applies to the actual entity and the services it offers. Registration alone does not guarantee an investment's performance.

Should I invest in an opportunity that promises guaranteed returns?

Do not rely on a guarantee simply because it is advertised. Examine the legal terms, the identity and status of the provider, the source of the return and the circumstances in which payment could fail. Be especially cautious of claims of unusually high returns with little or no risk.

Is a popular investment necessarily a good investment?

No. Popularity and testimonials do not establish that an investment is legitimate, suitable or profitable. Independent verification and an assessment of the risks, costs and terms are still necessary.

Should I invest if I may need the money soon?

Consider whether the investment allows you to access your money when needed and whether its value could fall before you withdraw it. Money required for essential near-term obligations should not be committed without carefully considering the consequences.

Can I lose money in a registered investment?

Yes. Registration of a provider does not eliminate market risk, business risk, credit risk or other risks associated with an investment. The nature and extent of the risk depend on the product and its circumstances.

 

Final Thoughts: Verify Before You Invest

Buying an investment should involve more than comparing advertised returns or following a recommendation.

You need to understand the product, verify the provider, examine the risks, calculate the costs and consider whether the investment fits your financial goals. You should also know how you can exit the investment and what could happen if circumstances change.

In Nigeria, checking the relevant regulatory records is an important step, especially when an opportunity is promoted online. However, verification is only one part of the decision. You must still evaluate the investment itself.

My advice is simple: do not commit your money until you understand what you are buying, what could go wrong and how the investment fits your financial circumstances.

A good investment decision is not necessarily the one promising the highest return. It is one made with a clear understanding of the evidence, risks, costs and possible outcomes.

 

Further Reading and Sources

1.    SEC Nigeria: Public Notice on Unregistered Online Investment Schemes

2.    SEC Nigeria: Find a Registered Operator

3.    SEC Nigeria: FAQs for Investors

4.    SEC Nigeria: FAQs on Ponzi Schemes and Registered Fund Managers

5.    Investor.gov: Five Questions to Ask Before You Invest

6.    Investor.gov: Understanding Fees

7.    Investor.gov: Asset Allocation and Diversification

 

Author Bio

Idris Ibrahim is a Certified National Accountant (CNA) with over 15 years of experience in financial management, accounting, treasury, budgeting, financial reporting, and regulatory compliance. He is also a finance-focused copywriter who combines professional accounting knowledge with clear, practical communication to make complex financial topics easier to understand. Through Dikanons, he creates educational content on finance, fintech, wealth, and business, helping individuals and organizations communicate financial information with clarity and purpose. Read more Articles on Finance, Fintech and Wealth Insights at Ibjnr2003 blog

 

Disclaimer

This article is for educational and informational purposes only. It does not constitute personalized financial, investment, legal or tax advice, nor is it a recommendation to buy or sell any particular investment.

Investment products, risks, costs, regulatory requirements and withdrawal conditions vary. Verify current information with the relevant regulator and provider, review the applicable documents, and consider obtaining independent professional advice before making an investment decision. All investments involve risk, and you may lose some or all of your invested capital.