No in­vest­ment is ever a sure thing

When pre­sented with a get-richquick plan, ask these ques­tions

Metro Canada (Toronto) - - Money - Gail vaz-oxlade For Metro canada

Paula called me up re­cently to tell me that she’d lost a bunch of money lever­ag­ing an in­vest­ment us­ing her credit cards. She was bawl­ing.

Liv­ing on a fixed in­come, she was just get­ting by.

She’d been told that monthly charges to her credit card would net her eight per cent re­turn each year. It was too good to pass up.

“Eight per cent?” I asked, “Didn’t that seem high?”

“Isn’t that the av­er­age of the stock mar­ket?” she asked. “That’s what I heard.”

“Noth­ing in the stock mar­ket is guar­an­teed,” I re­sponded, per­haps a lit­tle im­pa­tiently.

I can’t be­lieve these things are still around and peo­ple are still gob­bling them up hook, line and sinker.

When a com­pany or an in­di­vid­ual re­cruits in­vestors, who then have to re­cruit other in­vestors, it’s usu­ally the sign of a pyra­mid scheme.

New re­cruits pro­vide the fund- ing — the so-called re­turns — given to the ear­lier in­vestors/ re­cruits push­ing them up the pyra­mid. The only way the pyra­mid scheme can gen­er­ate re­turns is to bring in more suck­ers to feed the bot­tom tier.

When the scheme loses steam, the pyra­mid col­lapses.

Now pyra­mid schemes seem to have added the ad­di­tional di­men­sion of putting credit into the mix.

What a recipe for dis­as­ter! And to make it all work, you’ve got to en­tice friends and fam­ily into mak­ing the same bad de­ci­sion you did when you handed over your credit card.

If you’re ap­proached with a “great deal” and a prom­ise of “fab­u­lous re­turns” or a “sure thing,” ask these ques­tions be­fore you swal­low the hook:

• Do you have a brochure? No pa­per should be a big tip-off.

• What ex­actly am I buy­ing? If you can’t touch it, you shouldn’t buy it.

• Who is in charge? That’s the per­son you want to talk to.

• What do I get back for the money I am in­vest­ing? If the re­turn sounds un­be­liev­able, ask more ques­tions.

• Why do I have to re­cruit some­one else? No other in­vest­ment re­lies on re­cruit­ment.

• How is this in­vest­ment taxed? If it’s not taxed, it’s not an in­vest­ment.

• Why do you need ac­cess to my credit card? Don’t do it. No one should be able to charge stuff to your credit card that comes as a sur­prise to you!

• How long can I think about this? The sooner you have to make a de­ci­sion, the more time you should take to think about it.

The old adage is, “There’s a sucker born every minute” has been in­cor­rectly at­trib­uted to P.T. Bar­num. While the at­tri­bu­tion may be in­cor­rect, the sen­ti­ment is dead on.

There’s no magic to mak­ing money, no mat­ter how many get-rich-quick schemes you see out there or how many tes­ti­mo­ni­als there are to a new way to make money.

Hav­ing lots and lots of money takes hard work and care­ful man­age­ment. If you’re look­ing for an easy way, you’re a sap. It’s only a mat­ter of time be­fore you get taken.

The only way the pyra­mid scheme can gen­er­ate re­turns is to bring in more suck­ers.

For more money ad­vice, visit Gail’s web­site at gail­va­zoxlade. com

Istock

When a com­pany or an in­di­vid­ual re­cruits in­vestors, who then have to re­cruit oth­ers, it’s usu­ally the sign of a pyra­mid scheme, writes Gail vaz-oxlade.

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