The start of Ponzi schemes
get their name from Charles Ponzi who scammed members of the public out of millions of dollars back in the 1920s. He did this offering investment opportunities in international postal coupons.
Over the years, Ponzi schemes have evolved and include pyramid schemes. But regardless of their form, they’re investment scams. Chances are you’ll never make the returns promised and lose any money you put in.
So many investors fall for these scams as they hope to make money quickly.
Let’s take a closer look at how a Ponzi scheme works and what you need to watch out for…
The ins and outs of Ponzi schemes
The scammer behind a Ponzi scheme advertises a bogus investment opportunity, Michelle Roberts in More Money Review
explains. This can be anything from investing in property to investing in shares.
Bu the truth is, the investment doesn’t exist.
The scammer promises to make you massive returns for a small investment, with no risk. The scammer will try to have you believe you do nothing at all whilst your investment balloons.
If you’re one of the first into the scheme, you may make some money. But this cash isn’t from the performance of the investment, it’s from other investors who’ve joined after you did.
Investors then spread the news of their returns and this convinces other investors to take the plunge. Eventually the scammer will vanish along with all of the investors’ money.
With Ponzi schemes, chances are you won’t see any return on your money, let alone your initial investment back.
How to spot Ponzi schemes
To avoid falling victim to this type of investment scam, if an investment appears to be too good to be true, it usually is. You should be very wary of any investment which claims to be risk free.
Risk free investments are few and far between. Investments always come with some degree of risk.
So there you have it. The tell-tale signs of Ponzi schemes.
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