Many of us have seen numerous investing opportunities and other money making schemes out there. Some of them are totally legitimate and sustainable, while others are shady and unsustainable.
A pyramid scheme is a sketchy and unsustainable business model, where a few top-level members recruit newer members, who pay upfront costs up the chain, to those who enrolled them. As newer members in turn recruit underlings of their own, a portion of the subsequent fees they receive is also kicked up the chain. Often called “pyramid scams,” these operations are illegal in some countries.
Pyramid schemes would work if there’s any product or service being provided, assuming it’s a profitable one. Some shady “show off products” don’t count.
There’s also a Ponzi scheme which usually promises ultra high returns in a short period of time. For example, you must deposit $250 and you will receive $7500 in 45 days. In reality, very few first people may actually win that. The problem is that the system will crash before your 45 days are done. They all go under, no exceptions.
Network marketing, often also called MLM (multilevel marketing whose levels may look like a pyramid), is a brilliant marketing strategy with a win-win situation where all the participants win.
Some of the best-known companies in America, including Avon, Mary Kay Cosmetics and Tupperware, fall into the network marketing category.
This is so good because of the organic advertising. People are motivated to spread the word.
Some companies require you to buy their product or pay some fees in order for you to enroll. Luckily it’s not always like this. There are companies who pay commissions on any sale you make, no strings attached.
Unfortunately, this marketing strategy is an appealing strategy for scammers who use this to fuel their Ponzi schemes and money-oriented pyramid schemes.
How to tell if it’s a scam or legit?
There are some quite simple key factors to pay attention to if you want to know if you’re dealing with pyramid schemes or legitimate and sustainable businesses.
- Who’s running the company? Do they have real people or are they hidden?
- Are the owners and staff members actual people or just fake profiles on Facebook?
- Is their business transparent? Do they actually offer any product or service that’s more than a mere facade?
- Does it sound too good to be true? Or does it sound reasonable? For example: at least 1-2% daily profit on your investment is unsustainable, therefore it’s most likely a scam. I would say, 10-15% per month is the maximum to fall under the “reasonable” umbrella. Even then, the other points listed here are still relevant.
- Is there any actual proof of the activity the company is claiming to be about?
- Is the company registered offshore (shady) or not?
- HYIP (high yield investment program) businesses are unsustainable, usually plain Ponzi schemes, often including pyramid schemes for marketing.
Any exceptions are possible, of course. In that case of doubts you just have to research the company deeper. However, there’s next to no exceptions about the ridiculously high returns on investment.
Keep in mind that any company can go under at any time. It doesn’t matter if it’s Microsoft or some Joe’s bar at the street corner. This is why it’s always recommended to invest only as much as you can afford to lose, should the worst happen. Just to be on the safe side.