IDENTIFYING A PONZI SCHEME AND HOW TO AVOID INVESTING IN ONE
A Ponzi scheme promises high financial returns or dividends not available through traditional investments. They often pose as get-rich-quick schemes. If asked about returns, Ponzi schemers often base their capital on the number of people on board.- FBI
Instead of investing the funds of victims, however, they pay “dividends” to initial investors using the funds of subsequent investors.
The scheme generally falls apart when the operator flees with all of the proceeds or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”
How to spot a Ponzi scheme
Several markers that raise red flags of a Ponzi scheme include:
1. Promised high returns with minimal risks.
Any economist or financial advisor will tell you that all investments have risks. In fact, investments that have high returns have the highest risks.
If you are promised high returns on your investments with low or non-existent risk, you should evaluate your
2. Non-verified investments
Confirm if the institution you are investing in is regulated and registered under the SEC (US Security and Exchange Commission) or Kenya Investment Authority or oversight authority. Companies that register under these 2 bodies have easily accessible investing information and records of investing companies.
3. If the details are too complex to understand, leave it
It is only fair to invest in projects you are well conversant with. This does not mean that all complex projects are Ponzi schemes. There are investments in tech that are complex but very legitimate. An example is Bitcoin that has opened opportunities to limitless possibilities.
4. Dwindling Returns
Have other people invested in the project? What is their story? Are there complaints about the investment? If an investment has dwindling returns, chances are it is a Ponzi scheme.
We are committed to teaching you principles of wealth creation that will allow you to invest wisely and not just impulsively. Financial fitness involves aligning investment strategies to realistic financial goals. This will help you in your East spending.
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