The bad news is that they end up losing their life savings by placing their money in Ponzi and Pyramid Schemes.
What is a Ponzi Scheme?
Named after the person (Charles Ponzi) who first made these schemes infamous, they are operated by tricksters and sometimes seemingly legitimate businesses that will invite you to invest in a scheme or business. The operator promises you unrealistically large returns on your investment in a short period of time.
These schemes depend on enticing a steady flow of investors, whose money goes to pay off promises made to earlier investors. Any such scheme will inevitably collapse, as it is impossible to find enough new investors to keep the scheme going.
What is a Pyramid Scheme?
A Pyramid scheme is one in which you are required to be an active participant. After an initial entry payment has been made, you would be required to recruit other members before earning a return on the original ‘investment’. The more recruits, the greater the return!
What is the difference between a Ponzi and Pyramid scheme?
The major difference between the schemes is that in Ponzi schemes the investor takes no active part, whereas in a pyramid scheme, active involvement is a requirement.
Tips for avoiding Ponzi and Pyramid schemes:
· When choosing a moneymaking opportunity, do your homework thoroughly.
· Get advice from registered financial advisers; this is available free of charge with no obligation.
· Take your time, you didn’t save it overnight.
· Be particularly cautious of ‘opportunities’ that promise to make you wealthy in a very short period.
· Beware of a ‘secret formula’ that will only be shared with select investors.
Why use registered financial institutions?
Accredited Financial institutions are regulated and supervised, by either the South African Reserve Bank, National Consumer Commission or the Financial Services Board.
There are strict rules and controls that govern investments with these institutions whereas, unregulated and unsupervised persons and groups don’t follow these rules and your money is at great risk with them.
An investment for the future must be a decision for long-term commitment. Be confident that your money is safe.
How to protect your money?
Make sure that you only give your money to a company or person that is registered as an accredited financial services provider and a deposit taking institution in terms of the Banks Act.
Take the time to check with a respected and registered adviser.
How do you know if a financial institution / company is legitimate?
For more information visit www.resbank.co.za or to find out if a business is accredited contact the Financial Services Board Fraud and Ethics Hotline: 0800 313 626.
A golden rule