We have all heard the stories about someone being taken advantage of and losing a lot of money because someone they knew had made a bad investment. We tell ourselves, "that could never happen to me, I am too smart for that." The problem is, we all want to trust people, and believe they are honest and will do the right thing. The reality is: that is not the world we live in.
All Ponzi schemes must have the following five key elements in order to work and separate investors from their money.
This part is easy. Money is always the benefit; the accumulation of more money is the reason people get involved in these matters.
The person touting the investment has an "air" about him that he is the best there is at investing money and that your money is safe.
An Appearance of Credibility
The person running the Ponzi scheme places people and structures around him/her which generate an appearance that everything is "above board" with the company.
Initial Investors Paid Off
For several months or years, depending on the size of the scheme, the initial investors are paid according to their agreement with the company, if not better. Many times investors will re-invest their "profits" back into the company.
The people running the scheme must spend a lot of time telling people how well they are doing and showing off how well the investments are making money.
How to Protect Yourself
Protecting yourself from a Ponzi scheme begins with just a few steps:
Take some extra time to investigate the company to which you will be entrusting your money. It could save you a lifetime of heartache and sleepless nights. Be smart and ask questions.