From a real investment

promise any returns when sold correctly by professionals, carry a full risk warning stating that you can lose your investment as the value of such securities depends on the market, and the company’s performance. The risks are fully communicated so you, the investor, can make an informed decision. Steinhoff, African Bank, Aveng, Group Five and Impala Platinum are examples of stocks whose values were significantly reduced over time. But investors always knew the risk of loss of capital as it was communicated.

Pyramid schemes, however, promise unrealistic returns and should be treated with caution.

This is perhaps the common giveaway for a pyramid scheme. Its success depends on new members joining the scheme with new money to keep paying those who joined first. Schemes often ask members to bring three participants, and each new member in the scheme has to focus on bringing new participants.

Once everyone who falls for the scheme has joined, it will eventually collapse as there is no more cash injection. This is why schemes don’t survive forever.

Companies promoting normal investments do not carry such invitations for other people to invest. Instead, as an investor, you will be told the risk of loss and the potential to earn returns, whereas the pyramid scheme pushers conceal the reality of potential losses.

‘‘ Pyramid scheme pushers conceal the reality of potential losses

These days, as a measure of reducing scepticism around such schemes, promoters usually introduce products or services that go with the scheme, and people get a sense of comfort because they have a holiday package, or some drink that can help reduce weight, to sell. Be cautious if the traits outlined above are reflected in the scheme, regardless of the goods and services attached.

People should continue to invest in long-term capital growth, and avoid being taken for a ride by such unethical schemers.

Owen S Nkomo is a director at Inkunzi Wealth Group, and can be reached on invest@iwgsa.co.za