Investment Scams to Watch Out For

Sometimes, you will come across something that seems like the opportunity of a lifetime. However, before you break your piggy bank and take out a loan to invest in this sure thing, you need to ask yourself whether you are a target of a scam. You need to ask for proof and a sustainable business plan, as well as look at the company’s history and incidents it may have had in the past.

Ponzi Scheme

Named after the businessman Charles Ponzi, the Ponzi scheme convinces its investors that the money they are receiving, and will continue to receive, comes from the products and services that the scamming company provides. In reality, what happens is that new investors give the company their money and the company takes it to pay out previous investors. One of the most famous cases of a Ponzi scheme was the Bernard Madoff scandal. The scheme unravels when the con-artist walks away with the money, the structure collapses in on itself, due to it being unsustainable, or the investors, for whatever reason, ask for their money back.

Madoff showed the public that even the biggest Wall Street moguls and the government can be fooled by this con, so there is really no fool-proof way to avoid it. You should avoid investing in a company which has been a target of several investigations, operates on the owner’s charisma, and has a system of operations you don’t clearly understand.

Multi-Level Marketing

MLM firms still exist in the world. You may also know them as pyramid schemes. You offer a product or a service and work on commission. Pretty soon, you discover that you are unable to make a sustainable income with this type of work. It is then, or even at the beginning of your job interview, that your mentor lets you in on a secret. Selling a high volume of products is a good way to earn money, but the real profit lies in getting people to work for you.

The story is that, if you have your own team, you will take a portion of their profits and pay out your debts and go on a holiday in no time. With a high enough level, you may even quit working altogether and just wait for the money to pour in.

Realistically, only the first few generations of the pyramid are likely to get rich from the plan, while the following few can make a decent living. Steps 10 and below will have a hard time finding customers and prospective employees, since there is simply not enough people left on the planet for you to make a profit. The executives often justify this by saying that you probably weren’t working very hard. After all, they are walking success stories, aren’t they?

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