How To Save Yourself From The Next Madoff Ponzi Scheme

“Don’t invest in anything you don’t understand – beware of anything that seems too good to be true and where noone is able to explain to you why it isn’t…”

In the below clip, Smart Money Expert Gemma Godfrey quickly explains how to avoid another Madoff – how a Ponzi scheme works, how to spot one and how to be smarter with your money.

Don’t invest in something you don’t understand

  • Beware anything that seems too good to be true, and

  • Where no-one will tell you why it’s not

Here we’re talking about a Ponzi scheme. This is a scheme which uses new capital to pay older investors, rather than generating genuine profits.

This is important to understand since it’s not so easy to spot one. Over 4,800 ‘clients’ were invested with Madoff when his scheme was finally exposed.

So let’s break it down

Monday: I tell Adam that if he gives me one apple today, I’ll give him 2 apples tomorrow.

Tuesday: hearing of this wonderful deal, Bob gives me one apple hoping for the same. I take his apple add it to Adam’s original apple and now have the two apples I need to pay to Adam. I offer this to him but instead he decides to stay in the game.

Wednesday: Word has spread and Carl, Clive, Claire, Claudia and Colin all give me their apples. I now have enough to offer Bob back his original apple plus one day’s worth of returns and Adam his plus two. And so on it goes..

The lesson

Each time, new apples are used to pay older investors. Nothing is being created, only passed on.

And the problem arises when there aren’t enough new apples or older investors want take their apples out of the game.

What You Can Do

1. BEWARE ANYTHING THAT SEEMS TOO GOOD TO BE TRUE:

  • Abnormally high returns, or
  • Eerily consistent returns (across a whole variety of different environments)

2. BEWARE THINGS THAT NO-ONE WILL EXPLAIN TO YOU:

  • Where the strategy is a secret
  • Vague terms are used, keeping it shrouded in mystery
  • When you hear the words: it’s “too complicated for outsiders to understand.”

 Don’t invest in something you don’t understand

  • Beware anything that seems too good to be true, and

  • Where no-one will tell you why it’s not

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