We have all been taught various words of wisdom…” Money doesn’t grow on trees” and “Look after the pennies, the pounds will look after themselves” and so on. Thus, there is much significance attributed to the skill in keeping our money safe.
As Robert Kiyosaki and Sharon Lechter lay out in their book – “Rich Dad Poor Dad”, the importance of financial literacy, financial independence and wealth-building through fair means demands due diligence. Given the value that money enjoys, many people who are unaware of the basics of investing are lured by unscrupulous elements who promise inflated returns against investments through crafty schemes and the gullible lot ends up losing even the principal amount invested. An ideal example of this is the Ponzi scheme, an investment scam that promises “high returns” with “low risk” to lure investors.
Ponzi schemes have continued o spread their tentacles since the 1920s when the Italian swindler – Charles Ponzi floated it. Since then, fraudulent operators have duped many innocent investors but of late measures have been taken to stop them before they extract large amounts. Most Ponzi schemes are much localized; the fraudsters run them in a few localities or one city. Recently these schemes are run online where the fraudsters don’t need to interact with someone face to face. No investment can give high returns with low risk. One should stay away from companies that ask you to invest and promise guaranteed doubling of money fast. In a Ponzi scheme, fraudsters use money from new investors to pay the existing ones and such “investment returns” are not generated through productive means, it is the money collected from other investors. Ponzi scheme operators may talk about novel business ideas, cryptocurrency etc., that yield high returns.
Today, on average, even if an investment is said to fetch 12% per annum, it is at high risk. There is hardly any legitimate form of investment other than equities. Ponzi scheme operators try every trick. Typically, they offer a commission to an investor who brings new investors. One must be very careful with companies that offer high interest rates and do not charge a penalty against early withdrawal of funds. Such companies may produce fake company registration certificates and other government documents to attract prospective investors. Ponzi schemes continue to give a tough challenge in the financial world as the Securities and Exchange Commission (SEC) continues to uncover them.
Do not be lured into quick money making especially during these trying times when the COVID-19 pandemic has caused a recession of such magnitude.