2 Ways to Spot a Ponzi Scheme

There are many people increasingly being victimized by the Ponzi schemes.  One needs to understand what Ponzi scheme is to prevent from being a victim. If you don't already know what Ponzi scheme is, it is a fraudulent investing scam promising high rates of return with little risk to investors. So why is it called Ponzi? It is because of the original criminal Charles Ponzi himself, a guy who became widely-known due to his scams many years back in Boston.

Some of you might think that this is either irrelevant to you or you are smart enough to avoid all these scams. However, in reality, the fraudsters are even smarter than you think. They approach their targets in a well-planned manner for persuasion because they know most of us are not prepared for it at all.

So, why not get yourself equipped with the knowledge before they reach you?

#1, Unrealistically High Rates of Return

Dale Carnegie, the author of "How To Win Friends And Influence People", stated that to influence a person, firstly, you must arouse in him or her an eager want. How? By giving incentives - promising high rates of return. People often get attracted by the word "Guaranteed" and this single word is sufficient to deceive a person into investing his hard-earned money.

There is no free lunch in the world, if you want extraordinarily high rates of return, you need to work harder than Warren Buffett. Despite working so hard, my investment role model 'only' manages to generate about 20% returns compounded annually. Hence, if someone guarantees you a return of way higher than 20% per year, be skeptical or just walk away instantly.

I came across a scheme 2 years back, one merely needs to place a sum of money into an account and your money will just keep rolling every second with a return of 300% in a year! I wasn't impressed at all and in fact lost my interest to listen right away.

#2, Little or No Risk

After taking care of the superbly high returns, the fraudsters know that if they don't assure you of the limited downside risks, you would be skeptical and walk away. Offering a risk-free investment with exceptionally high returns is just a method to beautify their products for deception purposes. Hence, please be extra cautious of offerings which no risk is involved with very high rate of return.


In short, the fraudsters must offer you the above incentives to lure you in. They will keep persuading people to join so as to use the new joiners' money to pay the existing members. The bubble bursts when the hole is too large to cover and they will go missing with the money out of a sudden.

It is really needless to dig further into the schemes' validity because I know clearly that there's no such thing in the world - guaranteeing exceptionally high returns but risk-free. Peter Lynch, one of the greatest investors of all time, achieved about 30% per year for 13 years - one of the best records I've ever seen.

Thus, if you are guaranteed of returns more than 20-30% per year with little or no risks, chances are you are dealing with a Ponzi scheme. Please exercise your judgement and be more cautious because you could lose all your savings in one go.