Why do people take money to financial pyramids?
It has always been a mystery to me why people are so willing to take their money to financial pyramids, because it is so easy to distinguish a pyramid from a reliable source of income.
The main features of a financial pyramid are record profitability, aggressive advertising, and the lack of licenses to provide financial services.
Every year millions of people become victims of scammers, and the earnings of these financial organizations amount to billions of US dollars.
Today people invest money in financial pyramids for a number of reasons:
- Thirst for quick earnings: Attractive promises of high returns in a short period of time are the main magnet for pyramid participants.
Excitement and the thirst for easy money cloud the mind, and people do not realize the riskiness of such investments.
- Financial Illiteracy: A lack of understanding of the basics of investing and a lack of knowledge about financial markets makes people vulnerable to manipulation by pyramid schemes.
If earlier the organizers of such pyramids allegedly invested money in energy and mining, now they attract investors by investing in cryptocurrencies .
- Emotional factors: Feelings of despair and hopelessness in a difficult financial situation can lead to the search for questionable shortcuts to solve problems.
The desire to gain control over their lives and improve their financial situation pushes people to take risky steps.
- Deceptive Advertising: Aggressive advertising campaigns that use flashy images and promises of a carefree life mislead people.
We are used to buying what is advertised, and not what is really trustworthy. Financial services are the same product that sells well if advertised well.
- Ease of investment: – in order to become a participant in the pyramid, you only need to deposit money, and you are guaranteed profit.
This is one of the main advantages of the pyramid over other investment options, because when buying shares you need to choose a promising company yourself, and when investing in real estate you will need to spend even more effort.
How to distinguish a pyramid from a real investment fund
This is surprisingly quite easy to do if you have a calculator and know how to use it.
The main feature of the pyramid is the promise of record income, as a percentage of the deposit amount, and this percentage is fixed.
But what annual percentage should cause concern?
I would not invest money in an organization that promised me earnings that were more than twice the current interest rate on loans, and guaranteed a percentage of payments.
That is, for example, now the bank rate on a loan in US dollars is 8%, and you are offered to deposit money at 20% per annum.
The question immediately arises: why doesn’t this company take out a loan at a cheaper interest rate, and ask them from you? The answer is simple: because the bank will not give money for such a dubious event.
It is clear that there are exceptions to this rule; there are hedge funds that consistently pay out 20% in US dollars, but they do not guarantee the amount of payments to their investors, but only provide profitability statistics for previous periods.
You always want to invest your earned money with maximum profitability, but unfortunately, record income in most cases is a sign of dishonest financial organizations. Therefore, alternative investment options .