Avoiding Pyramid Schemes

businessman talking on phone with suggested pyramid scheme hologram


Good investments are a healthy part of going beyond financial freedom toward becoming self sustaining. Bad investments come in many shapes and sizes, but none worse than pyramid schemes. Sometimes, an opportunity comes along that sounds too good to be true.

If you’ve been saving for a while, it could be tempting to put that money into an investment. Often, people fall prey to pyramid (Ponzi) schemes that promise handsome returns on investment quickly.

Pyramid schemes often come disguised as multi-level marketing companies. Not all multilevel marketing companies are schemes. Avon, for instance, is a legitimate company that sells actual products.

If someone approaches you with an investment opportunity, research as much you can about the company and the opportunity. The Financial Industry Regulatory Authority (FINRA) is an excellent resource. If there are no listings for the opportunity in question, that’s a red flag.

Always read the fine print. Never invest in an opportunity or a company that you don’t understand. If it’s too complicated to understand in simple terms, it’s probably not worth your time and money.

Be extremely skeptical of promises of high returns that come after only a brief period of time. Almost always, seeing a substantial return on investment takes some time. If someone’s promising you a short-term turnaround on your investment, chances are, there’s a hidden motive.

Pyramid schemes often sell opportunities rather than goods and services. Is there a genuine product or service being sold? If not, you’d better steer clear.

Most pyramid schemes emphasize recruiting. This speaks to the above point about a lack of goods or services. Pyramids generate money for the people at the top of the chain by selling opportunity to everyone below them. The scheme can’t succeed without recruiting.

Before you dive deeper into investments, make sure your financial house is in order. This means becoming debt free and creating a savings safety net to create a stable foundation. Pyramid schemes rob you of your financial freedom. To learn more about how to budget, save and become debt-free visit CreditGUARD of America for educational articles and to speak with a certified credit counselor.