Why do people invest money in financial pyramids?
It has always been a mystery to me why people are so willing to invest their money in financial pyramids, since it is so easy to distinguish a pyramid from a reliable source of income.
The main signs of a financial pyramid are record profitability, aggressive advertising, and the absence of licenses to provide financial services.
Millions of people fall victim to fraud every year, and these financial institutions earn billions of US dollars.
Today, people invest money in financial pyramids for a number of reasons:
- The thirst for quick money: Attractive promises of high returns in a short period of time are the main magnet for pyramid scheme participants.
Excitement and the thirst for easy money cloud judgment, and people do not realize the riskiness of such investments.
- Financial illiteracy: A lack of understanding of investing basics and knowledge of financial markets makes people vulnerable to manipulation by pyramid schemers.
While the organizers of such pyramid schemes previously allegedly invested in energy and mineral extraction, they are now attracting investors with investments in cryptocurrencies .
- Emotional factors: Feelings of despair and hopelessness in a difficult financial situation can lead to the search for questionable quick fixes.
The desire to gain control over their lives and improve their financial situation pushes people to take risky steps.
- False Advertising: Aggressive advertising campaigns using vivid images and promises of a carefree life mislead people.
We're used to buying what's advertised, not what's truly trustworthy. Financial services are a product that sells well if advertised well.
- Ease of investment: to become a participant in the pyramid, you only need to deposit money, and you are guaranteed a 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, while investing in real estate requires even more effort.
How to distinguish a pyramid scheme from a real investment fund
Surprisingly, this is quite easy to do if you have a calculator and know how to use it.
The main feature of a pyramid scheme is the promise of a record income, as a percentage of the deposit amount, and this percentage is fixed.
But what annual percentage rate should be a cause for concern?
I would not invest in an organization that promised me earnings that were more than twice the current interest rate on loans, and guaranteed the interest rate.
That is, for example, the current bank interest rate on a loan in US dollars is 8%, but you are offered to deposit money at 20% per annum.
The immediate question is: why doesn't this company take out a loan at a lower interest rate instead of asking you for it? The answer is simple: because the bank won't lend money for such a dubious undertaking.
Of course, there are exceptions to this rule. There are hedge funds that consistently pay out 20% in US dollars, but they do not guarantee the payout amount to their investors and only provide profitability statistics for past periods.
It's always tempting to invest your hard-earned money for maximum returns, but unfortunately, record returns are often a sign of dishonest financial institutions. Therefore, it's worth considering alternative investment options .
