Ponzi Scheme

So how do people fall for a Ponzi scheme?  They are shmoozed and hypnotized by the person “selling” an investment opportunity that sounds too good to be true.  Earn high returns, invest with the big boys including institutions and be part of an elite group.  A Ponzi Scheme usually works by paying older investors with new investors’ money that is coming into the fund.  The major problem is not how well the underlying investments are performing.  There’s not enough money to pay back all of the investors.  Period.

Here are two very basic Money Lessons for Life:

1.  If it seems too good to be true, it often isn’t.  A significantly higher than normal return for a given investment should at least trigger a yellow flag in your mind.  Be sure to conduct due dilligence before making any significant investment.  Don’t just trust people you know or people you think you know.

2.  Never put all of your eggs in one basket, no matter how amazing that basket appears to be.  Diversify your money with different types of investments (stocks, bonds, real estate, commodities), different industries(energy, biotechnology, agriculture, health care), maturity of investments (1 year, 5 year, 10 year horizons), and geographical location (Asia, South America, Eastern Europe).

Do you want to learn more about money and teach your children about money so they can be prepared to tackle their financial future?  Visit Money Lessons for Life to learn more about innovative financial literacy programs for schools, non-traditional money education DVDs and individual money coaching.