HomeHome SearchSearch MenuMenu Our productsOur products

If you don't know how to spot a pyramid scheme you WILL LOSE ALL YOUR MONEY

by , 07 March 2013

“Francois, I've been approached to invest in XXX. I've been told I can get a guaranteed return of 50% every 75 days. Should I invest in this great opportunity?”

I've received mails like these a thousand times.

Investment opportunities like this simply sound too good to be true.

And they usually are…
For instance, a few years back I warned a family member against the Sharemax pyramid scheme. They didn’t listen because their financial advisor knew better and the nearly 20% promised dividend sounded too good to let pass by. And as Sharemax collapsed they ended up losing their entire investment…
That’s not something I wish upon my worst enemy.
Which is why I’d like to share with you how to spot a pyramid scheme, but first, if you didn’t know let me tell you what a pyramid scheme is:
A pyramid scheme is designed to get your money – and recruit more suckers after you
That’s really the short of it.
A pyramid scheme is a financial scheme that recruits ‘investors’, takes their money and uses that to pay earlier investors. It then recruits new investors and uses their money to pay you.
I’m sure you can see where this is going.
As long as the pyramid scheme recruits more investors it keeps getting enough money to pay earlier investors.
But, as soon as new investors dry up the scheme will go under because its cash flow won’t be enough to pay investors their returns…
That’s when the pyramid scheme falls apart. And if you were an investor in a scheme like this you would lose most, if not ALL of your money.
So how do you make sure you’re not investing in a pyramid scheme?
At midnight on Starting March 31st – at Midnight – We are Permanently Raising the Cost of the FSP Financial Alliance Membership
The FSP Financial Alliance has created more wealth for our readers, faster, than any single research service we offer.
Three ways to spot a pyramid scheme from miles away
1.    High Risk doesn't equal High Rewards when you invest in a pyramid scheme!
Big profits are possible.
In fact just last week I banked 58% gains on a penny share in 5 months from investing in penny shares, which are often considered to be 'risky'. But penny share investments are only 'risky' if you don't know what you are doing and don't have a good fundamental reason to back the share you have your eye on...
Pyramid schemes on the other hand promised you massive gains like that at zero risk or ‘guaranteed’.
Ask any investor worth their salt and they’ll tell you there’s nothing like a guaranteed return of 50%. Perhaps a guaranteed return of 5% in a fixed deposit, but not more.
So remember – when someone promises you huge returns ‘guaranteed’ or at ‘no-risk’ you should get worried…
2.    Unusually high commissions mean trouble:
A typical unit trust or investment fund charges you 1.5% management fee and typically gives your financial adviser the same kind of commission.
A pyramid scheme like Sharemax offered advisers up to 10% in commissions. Now you tell me, if they pay out 10% of your money in commissions how are they going to make that back, and make another 20%, 30% or even 50% to pay you as well?
3.    Do you really know how your investment returns come about?
With a share listed on the JSE it’s easy. The company mines gold, or provides logistics services and you see its trucks on the road every day.
Listed companies are audited and can’t just lie to you outright. But many pyramid schemes promise you returns that are sky high but never tell you much about how they generate those returns.
So before you invest in anything – first understand how your returns will be generated. If that’s not clear – RUN. Now you might say with property syndications like Picvest it was clear, returns were generated from property rentals. But the fact is, investors were receiving ‘dividends’ even while these properties were being developed – a time when the companies have only expenses and no income.
So be critical and just investigate the opportunity before you put your money in…
Look out for these three things and you’ll be sure to spot a pyramid scheme from miles away.
But if you’re like me and you like to learn from real examples I’ve gone and sourced one example for you:
For instance a scam currently running on the web at http://cycle4dollars.com/eftformeincome.htm explains how it can return investors 50% in 75 days. That is, R50 every 75 days for every R100 they invested. Guaranteed!
It goes on to tell investors that they can bag 10% commission by introducing other investors to the ‘income opportunity’ as well.
And to top it all they tell you “It does not matter if you do not understand the compensation plan straight away”. For me this is the one thing you should NEVER do. You should first understand what you’re investing in. Then you should invest in it. Not the other way around.
Read this now, or miss out on THE buying opportunities of the year.
You could make a fortune with these 5 potentially explosive shares hand-picked by our market expert.
And we'll give you all the exciting details in this FREE Red Hot Report
You don’t need to look for ‘obscure’ investment opportunities, great ones are already right in front of you!
There’s absolutely no reason you need to put your money into a scheme like the one I mentioned above. There’s no regulatory oversight of ‘investments’ like that and it’s all too easy to get cheated out of your money.
Rather stick to listed, regulated companies on the JSE, regulated Unit trusts or do it yourself by investing in property.
The fact is, the JSE returned investors more than 20% last year.
JSE listed property companies routinely return investors more than 30% a year.
It might look like a lot less than the gains a pyramid scheme may promise you, but at least you’re getting REAL growth…
You could buy a rental property today and make thousands from rent and sell it for a capital gain in a few years’ time.
So with all these opportunities available – I urge you, don’t go investing in opportunities that feel questionable....
Stay away from any 'sure thing' that you don’t understand or are unsure of... 
And don't get involved with unregulated companies that take your money, never get audited and don’t show you how they make the money with which they pay you returns!

If you don't know how to spot a pyramid scheme you WILL LOSE ALL YOUR MONEY
Rate this article    
Note: 5 of 1 vote

Related articles

Related articles

Trending Topics