Avoid investments called a ‘sure thing’

Pyramid schemes now seem to have added the additional dimension of putting credit into the mix — a recipe for disaster

Paula called me 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 8 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 funding — 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 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? 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.

There’s no magic to making money, no matter how many get-richquick 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.