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What is a Ponzi Scheme?

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A Ponzi scheme is an attractive investment plan that ultimately backfires because the advisor is corrupt.For example, a person or business (typically a person because businesses are longer term and easier to sue) will offer investments with ridiculously high returns.You put money into it and get more back.It seems ideal and you've been getting paid, so you figure it's legitimate.People hear about it and soon enough everyone is pooling their money into the amazing investment, dreams of riches in their minds.And then the money's gone.The investment's gone.The advisor is gone.You're left empty handed and extremely disappointed.You've been tricked by what is a Ponzi scheme!

To avoid getting pulled into this, one of the most common investment traps, do your research.Check to ensure that the investment you're considering is reputable.Avoid investments with surrender charges, illiquid investments and upfront commissions.Surrender charges can be worked with if you're in good health (and expect to be for the next few years), aren't planning to move for at least a few years and will be married for at least a few years.Investments with surrender charges depend a lot on time.They change depending on your life circumstances, and unless you expect those three things to stay relatively stable you will likely want to look into a different investment plan.

Illiquid investments aren't the greatest in that they offer higher returns, but those returns can be difficult to cash in.So unless you know how to work the system or are alright with slow, complicated returns then once again, keep looking!

Upfront commissions are one of the worst investment types.Once your advisor has received your money, he loses incentive to continue providing you service.You could easily be tricked and/or receive very poor returns.Real estate is, of course, an exception as continuing service is hardly necessary anyway.

A few other schemes and tricks in the investment business to look out for include:
- Senior investment frauds.A common target for investment scammers are senior citizens.This is because they're likely to have accumulated a fair amount toward retirement.If an elderly person could be convinced to invest their retirement money, it would be all too easy to steal it and be away.This is probably one of the saddest scams, as the elderly can sometimes be particularly vulnerable due to Alzheimer's or whatever else.
- Promissory notes.Promissory notes ways you can get short-term loans.You make a promise to pay them back at some point in the future, and if the person refuses to give you a loan after you've signed, you're still obligated legally to pay.
- Affinity fraud.People are more likely to trust people/corporations they relate to.Some corrupt investment operations use this to their advantage, playing off of people's religion, ethnicity or whatever else to bamboozle them out of their life savings.For example, a church that promises if you pay x amount God will make you rich later on.People assume they can ‘trust God' and end up losing a lot of money.

Those are just a few of the most commonly used scams out there.Plenty more exist.However, this shouldn't put you off investing!There are also many legitimate companies with reasonable returns and everything you could want out of an investment.Just look closely and avoid anything that could remotely seems like what is a Ponzi scheme, affinity fraud, senior investment fraud or whatever else.Also stay away from up front commissions and the like.Once you sort out the false or misleading investments you'll be left with plenty of real ones to choose from.Find the best for you and start investing!


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