How You can Avoid Ponzi Schemes?

Are you someone, who would like to jump at any opportunity to put your money into such an investment, that promises you to give a market return that is too good to be true? However, if a broker tries to sell you any such deal, always use caution. You could be a victim of Ponzi Schemes, which is a type of fraud that has destroyed the lives of millions around the world for more than a century.

In regular Ponzi Schemes, fraudsters will promise you to provide an incredibly good return amount, which is much more than a regular scheme. And you know what? They even deliver for a while. But the worst part is they aren’t investing anything. Instead, they are just using the new investor’s money to pay their obligations to the old investors, which also includes the returns that were promised. However, these operations are not viable enough and can’t bring in enough cash flow in order to sustain and eventually collapse.

Although related, one should not get confused between Ponzi Schemes and Pyramid Schemes which often involve various fake multi-level marketing business opportunities. However, in both cases, money from new participants is used to pay those who joined earlier. Still, everything falls apart as the operations grow to an unsustainable level. So, below I’m sharing a few pointers to avoid Ponzi Schemes:

Always Ask Question

Don’t be afraid to ask questions. Even if you are approached by a relative, family friend or any financial institution, ask questions such as;

  •   What kind of returns I can expect to make and in what period of time?
  •   How much money do I need to put in the scheme?
  •   Is it even ‘guaranteed’ if that so how it is guaranteed and who guarantees the return?   
  •   If the returns are not guaranteed, ask about the risks and potentials
  •   When and how can I get my money out?

Continue to ask questions until you are completely satisfied with the information provided. And if you are not sure where your money is going, then you should drop the idea of investing.

Always Verify if the Investment is Registered

Ponzi Schemes mostly involve unregistered investments. So always start by asking the sales person if the investment is registered, and if he/she says that it is not registered, ask why. Even if the sales person says it is registered, then also you should verify that claim. Also, don’t forget to check your state securities regulator and FINRA’s market data.  

Bringing a Trusted Advisor is a Good Idea

Always try to take your attorney or financial advisor while interviewing the firm. They might have a few questions that you never have thought of. If you don’t have an attorney or financial advisor, then you can take one of your most trusted friends, who can be your second set of ears.

Always keep in mind, if you are told that it is not necessary to bring anyone along for the meeting or you don’t need to take any notes, even if you can’t take anything from the meeting then you should be wary regarding the company. The privacy part should come from you, not from the firm that you are interviewing to make an investment. Those who run the business of Ponzi Schemes, often try to hide the facts in order to get your investment. 

Try to Understand the Investment

Don’t put your money into an investment that you don’t understand. You can find multiple resources online that will help you to learn how to evaluate opportunities for potential risks and gains. Don’t write a cheque or open an account in a firm that won’t fully answer your questions or who tries to discourage your questions by saying the investment is far too complex for laymen and you probably won’t be able to understand.

So, here I’ve pointed out a few ways, through which you can avoid any Ponzi Schemes. Please keep in mind that you know who you are dealing with and you completely understand the investment before handing over your hard-earned money. People who are retired or those who are close to retirement are the most at risk of becoming prey to Ponzi Schemes. If you found something off, quickly report it to the concerned authorities and let them figure if the investment is authentic or not.

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