Thanks to the lightning-fast information transmission and payment systems, investors today have more options than ever before. However, along with this plethora of new options come a number of new risks. The age of online investing has also witnessed the growth of a variety of High-Yield Investment Programs or hyip. They promise big-league returns but can also pose serious risks to unwary investors. This article will help you to identify the characteristics of an high-yield program and make safe choices with your hard-earned money.
The Concept of a High-Yield Investment Program or HYIP
A high-yield investment program is essentially any investment vehicle that promises incredibly high returns to investors for a small initial investment. Usually, it’s in a very short period of time. High-yield programs have become notorious over the years. The reason is the many scams that have disguised themselves as quick-money investments.
The classic high-yield scam is the so-called Ponzi scheme, although there are a number of other types. Ponzi schemes rely on attracting initial investors. They use such promises of record-breaking returns on their investments. They then use that money to lure in and pay the next round of investors. These schemes require a constant flow of new investors to pay the original ones. If the flow of investors breaks down, then the scheme collapses. Investors who haven’t yet cashed out then lose everything.
These investment programs go back to at least the early 1900s. They include the famous case of Charles Ponzi, who gave the Ponzi scheme its name. Other recent high-profile HYIP scams include the Bernie Madoff scandal and the Allen Stanford case. Thanks to the proliferation of easy-to-use online payment systems and the ease of contacting investors over the internet, these schemes have become more and more common in recent years.
Today, most investors who get involved with illegitimate programs or scams typically discover a website. It promotes an investment program with amazingly high and consistent returns of 1 percent daily or more. However, these websites will offer little to no information about the program’s management, its legal status, location or underlying investments. At best, they will link to unverifiable reviewing sites and other promotional materials.
Unfortunately, the internet makes it easy for scammers to create authentic-looking review sites and fraudulent investment trackers to deceive investors. Frequently, the scammers themselves pay for these sites to make their investment programs appear to be legitimate.
Disadvantages of High-Yield Programs
Although many high-profile Ponzi cases have sounded the alarm about HYIP scams, some online sources still claim that it is possible to make money with these kinds of programs, even if they are risky. If you do decide to take a chance with an investment that promises incredible returns, you owe it yourself to be aware of the many risks associated with these kinds of investments.
The Dangers of HYIPs
- Investors May Lose Everything Suddenly
Most of these programs are very short-lived, often wrapping up in less than 18 months. Those that run afoul of the law may be shut down at any time. Investments that are still in the hands of the HYIP may be lost forever when it wraps up, disappears or shuts down.
- Ethical and Legal Concerns
While some HYIPs may be legitimate, in many cases investors are dealing with fraudsters. They are intentionally attempting to deceive investors. Investors, therefore run the risk of falling afoul of the law. They participate in defrauding other participants in the scheme.
- No Guarantees
Although many HYIPs claim to guarantee high returns to investors, this is both impossible and a good sign of a scam. Despite what promotional materials may say, no investment can guarantee success.
- Lack of Information
High-yield programs make it hard to assess your risk. That’s because the programs often provide very little information. Without information about underlying investments or payouts to past investors, it’s almost impossible to decide whether a program is legitimate or not. If an HYIP investment cannot be held in an ordinary account with a bank or brokerage, then investors won’t be able to discover whether there are real securities at the bottom of the program.
- Inflation and Other Hidden Costs
Investments that promise high yields might have other costs involved. Some programs come with hidden fees or payments. Others promise big returns on the basis of foreign investments from countries with high inflation. That will end up canceling out any gains for the investor.
Are There Legitimate High-Yield Programs?
For the average investor faced with the bewildering array of choices of investment programs, it can be difficult to distinguish legitimate investments from scams. While it’s impossible to say that every HYIP is actually a fraud, the Securities and Exchange Commission warns consumers that many of the promises made by high-yield programs are often warning signs of scams.
Some investors choose to knowingly invest in Ponzi schemes. They hope to invest early and then cash out of the scheme with a tidy profit before it collapses. Like other high-risk strategies, this method relies on timing. Some of these investors use “tracker” sites to time their exit from these investments before they collapse, but there’s good evidence that these sites are often inaccurate or are run by the scammers themselves.
At the end of the day, even a perfectly legitimate high-yield program that is not a Ponzi scheme will still carry significant risks. The best choice for investors is to be on the lookout for the warning signs of scams and to always seriously assess the risks of any investment.
Although high-yield investments come with alluring promises of high rewards, they also carry major risks. Even programs that are not outright scams are often very risky for investors. Solid information about most high-yield programs is hard to come by. That is because the programs tend to be secretive. Also because online review and tracking sites are so unreliable.
Investors should be on the lookout for the signs of scams. Examples include promises of guaranteed returns, secrecy or concealment of the underlying securities and complex requirements for investing. It is also important to carefully scrutinize even completely legitimate investment methods. Always carefully consider the level of risk you are willing to accept before you trust others with your money in any type of hyip.