Imagine a buddy approaching you and telling you about this fantastic investment. It has a high rate of return. He offers you very little information on the business into which you are investing your money. You only need to give up a few thousand Naira. Wait a certain amount of time, and your money will double or quadruple. Please go; it’s most likely a Ponzi scheme. A Ponzi scheme is a type of investment scam that you should stay away from.
Ponzi schemes have been around since the 1920s, and they have remained an illegal type of investing. Unfortunately, not all Ponzi schemes are same, making them difficult to detect until you become a victim.
What Are Ponzi Schemes and How Do They Work?
Although the Ponzi scheme has a fixed formula, it may be implemented in a variety of ways. They appear at random intervals with a varying level of functioning, so you don’t see them all on the front pages.
Ponzi schemes are based on the practice of repaying previous investors with funds raised from new investors. The core method hasn’t changed. Attract a few investors that are prepared to invest early in a company. The specifics of the investment are never made public, therefore it doesn’t really matter. The prospect of many returns on investments is what attracts individuals.
They pay out some of the money after the first round of investors and use the remainder to establish a professional persona for themselves, such as setting up an office and perhaps purchasing some vehicles. This is all for the purpose of defrauding the next round of investors.
The Ponzi scheme’s second batch of investors will eventually want payment. It’s as easy as washing, rinsing, and repeating. The funds raised from a freshly recruited third round of investors can be used to pay off the second round and increase the first round’s profits.
Finally, as the Ponzi scheme grows in popularity, so do the issues. The strain on the schemer increases as well. Many investors will be looking for a return, and they will need to be satisfied quickly. It’s now a situation of too many investors cashing out versus too few investors entering in, and things are becoming ugly. The strategy will ultimately become unsustainable, and the scheme’s upside-down house of cards will come crashing down.
Why should you be wary of Ponzi schemes?
- Only the hungry rush in – Allowing oneself to be forced into any type of investment is not a good idea. When making investing selections, take your time. When you’re under a lot of stress, you should be distrustful of everything.
- Any investment that promises unrealistic profits should be avoided at all costs. Investing isn’t a money-making machine. Any type of investing involves processes and a degree of risk.
- Consistent investment returns – with every type of investment, there is always a risk. So it’s not government bonds, and you’re promised a consistent rate of return. Please look into it further. Make certain it isn’t a front for another Ponzi scheme.
- Finally, thoroughly analyze the information provided by the firm before making an investment. A suspicious absence of specifics should raise an alarm.
On a daily basis, many Nigerians have lost money to Ponzi scams and continue to do so. This is why you should be cautious and avoid any investment that promises large profits in a short period of time. Most of the time, they’re Ponzi scams aiming to take advantage of people’s naivety.