What is a pyramid scheme?

Deciding where to allocate your funds for maximum return is one of the most challenging decisions for investors looking to increase their wealth or earn income. There are several options, some of which are time consuming to manage.

Many investors tend to have other professions that bind them, leaving little room to actively participate in the day-to-day management and decision-making that affects their assets. Investment decisions about exactly which funds to target to meet specific needs and associated risks are often complex and require a high level of expertise and knowledge.

For this reason, there are professional investment vehicles that handle investment management decisions on behalf of clients. These vehicles vary in shape and size, depending on the type of assets in which they are invested, the group of investors it targets, and the specific requirements, such as the increase in the value of the assets or the generation of income from them.

However, pyramid schemes have promised high returns to investors but have led to massive losses by disguising themselves as legitimate investment opportunities. Learn more about what is a pyramid scheme?

As the name suggests, pyramid schemes are built in the form of a pyramid, starting with a single individual and having to join the system further through a reference mechanism. Good investments typically provide a product or service that generates income that can then be distributed to investors in the form of income. However, pyramid schemes do not offer any particular product.

In the model of money earned in these schemes, the person is directed to join the scheme, and when he joins and pays the registration fee or invests in the scheme, part of the money is used to pay the person who sent the new member. The new member receives money by recruiting more people to invest in the program. More references will be received.

The program is pyramid scheme as each new recruitment layer joins the system and begins recruiting other people. Assuming that the original member recruits 10 people and they continue to recruit 10 people each, the system has grown to 3 levels, the first with 1 member, the second with 10 members, and the third with 100 members.

Recruiters typically earn revenue from different layers of the chain created by their recruits. Since no particular product or service is provided other than recruitment, the end of the system when there are no more recruitments at the base of the pyramid to facilitate the generation of higher income in the pyramid.

The business of Ponzi schemes involves taking money from one or more people and using it to hire them. Because the number of people that can be recruited into any system is limited, pyramid schemes tend to collapse after a while, when new recruitments cannot be called to the platform. Recruitment does not mean investment, which in turn does not mean revenue for the Pyramid. As a result, it is a guarantee that money will be lost along the line because the system cannot be left alone.