What are Ponzi Schemes?

1. How should one spot and avoid a Ponzi Scheme ? A Ponzi scheme is a form of investment strategy that deceives investors. It comprises using money from new investors to pay off old investments. Ponzi scheme organizers o?en promise to invest the money they collect to make huge returns with little to no risk. Scammers, on the other hand, do not aim to invest money in the traditional sense. Instead, they intend to compensate the early investors to give the initiative credibility. As a result, a Ponzi scheme's capacity to stay afloat is reliant on a steady stream of funds. When the organizers are unable to recruit new members or when a big proportion of current investors withdraw, the plan falls apart. What are Ponzi Schemes? A Ponzi scheme is the oldest and most prevalent type of investment plan wherein participants are promised high returns in exchange for their money. The scheme was named a?er Charles Ponzi, a con artist from the 1920s who guaranteed New England investors a 40 percent return on their money in 90 days, in contrast to the 5% interest earned on savings accounts. In this scheme, the investor is asked to join new investors and earn money, and so the cycle goes. The scheme creators pay the old investors with money from the new investors. A Ponzi scheme can adopt any shape or form, based on the promoter's imaginative mind, and can be managed by anyone with a penchant for deception. In most Ponzi schemes, the organizer and early investors make tons of money and live extravagant lifestyles, while the subsequent investors lose everything. How can you spot a Ponzi Scheme? It is necessary to exercise caution when you come across a Ponzi scheme. Following are some points to spot the deceptive scheme:

2. Unusually high returns The assurance of an abnormally large investment return is the clearest symptom of any investment trickery. Ponzi schemes come in several shapes and sizes, but they all have one thing in common: investors are promised a considerably larger return than they could get from any other type of investment. Remember the cliché when evaluating investment opportunities: if anything seems too enticing, it probably is. Assured returns The terms "guaranteed profits" are meant to elicit deep-seated investor greed as well as the willful conviction that this is a "sure-fire item." When it comes to investing, though, no return can ever be guaranteed, and even the smallest investment has some risk. When it comes to trading, greed is your worst enemy. Anyone who promises a definite return on your investment should be avoided at all costs. High-level performance regularly Investment markets rise and fall over time by their very nature, and your profits in any reputable investment will mirror these market swings. Any investment that guarantees consistent positive returns independent of market conditions should be avoided. More investors are required. Any Ponzi scheme's ability to attract new investors is critical to its long-term viability. The fraudster would be unable to pay the former investors without a continual inflow of new investors, and the entire scheme will collapse. Alarm bells should ring if you are pushed to locate new investors or given rewards for bringing new investors. How to avoid Ponzi schemes?

3. A?er Charles Ponzi, another fraudster called Bernard Madoff executed the Ponzi schem e of $50 million. He suffered a prison term of 150 years. So, to not lose your money, it is necessary to avoid Ponzi Schemes at all costs. Research Before investing in any Ponzi scheme , make sure you do thorough research about the scheme promoter and also ask to see the papers. Trusted Financial Advisor It is critical that you only invest with your trusted financial advisor to not lose money. Or at least research his investment history, accreditation, etc. Pay attention to your gut feelings You might not want to invest in anything you consider to be extremely exotic, risky, or strange. If someone guarantees an investment return that is unusually high or consistent, a red flag should go up. Individuals approaching retirement Elderly people should be extremely cautious about their financial situation. You're probably banking on the money you've saved to guide you through your golden years. Make sure that every investment decision you make is built on logic. Summary A Ponzi scheme is a fictitious investment. The approach provides a consistent stream of large earnings with little risk. Even if such a system works for a while, it will eventually run out of money. Hence, it is necessary for one knows how to identify and avoid such Ponzi schemes.