Don’t lose your money in one of these schemes

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Don’t lose your money in one of these schemes

If you are invested in a scheme that offers you a 30% return per month (or are thinking about it), you are in dangerous waters. You run the risk of losing all of your money. If you are one of the lucky ones, you may be getting your returns from the poor souls that invest after you. When it comes to such a pyramid scheme, someone is going to lose. Do you want to be one of them? Do you want to make money because someone else is losing?

People in SA are feeling the pinch of tough economic conditions due to rising prices, rising interest rates, higher unemployment and drought. They are getting desperate and will do what it takes to make ends meet. Their options are usually limited. If they have savings in traditional bank accounts, they can expect maybe 6% growth per year, which is not enough to make up for rising prices. They can borrow from micro lenders, but the interest rates are high (around 30% per year) and it is becoming more and more difficult to gain approval (because people are already very indebted). They can join stokvels, but that only helps if their payout is early in the year and even then, they are still not getting out more than they put in over a year. So what must they do?

An option that more and more people are taking is to invest in schemes that offer huge returns. One of these schemes offers the possibility of earning a 30% return every month. That means that you can double your money every three months. Wow. It sounds too good to be true. That is because it is too good to be true. It is impossible for any organisation to provide their investors with a 30% monthly return on a sustainable basis. Not unlikely. Impossible. What you are looking at is a typical pyramid scheme.

It is true that sometimes assets can appreciate greatly in value over a short period. This happens when you invest in something that is extremely under-priced (because people don’t know enough about it at the time) or when you invest in something before very positive news about it emerges (profits rise significantly or they literally strike gold or oil unexpectedly). The thing is that good news spreads fast. Once the news is out there and once people find out about it, the price goes up significantly, but after that the pace of increase slows down. For something to go up significantly month after month, year after year, continued fresh good news has to emerge. This is very unlikely, because people love a great story and will look extremely closely at a fast-rising asset, which makes it increasingly difficult for good news to remain hidden. What is more likely to happen is that the hype around such an asset will cause it to rise too fast. It will become more expensive than what the underlying news implies and a bubble is created. More often than not, the news can’t keep up with the price, the bubble bursts, the price collapses and people lose their money.

That is if you’re investing in an asset. But what if there is no underlying asset? What if the scheme you are investing in relies on you transferring money directly to people that joined before you and the money that you hope to get out will come from people that join after you? Such a scheme is just like a stokvel, but a stokvel without a bank account (that at least earns an interest rate). Imagine you join a stokvel in January and put in R1000. What would have to happen for you to get out R23000 in December (which is what you would get if you earned 30% per month)? Well, either the stokvel must win the lottery or the number of members in the stokvel must increase 20 times and every R1000 put in by those 20 people must come to you. Of course these 20 people will also expect to get 30% per month, so at the end of year 2, the stokvel needs to find R500000 to pay these people. Where will this money come from? Eventually people are going to lose their money and for every one person that wins, there has to be 20 losers!

Schemes such as this can’t be sustained without rapid growth in membership. They depend on people going out and recruiting more people. Those that have put in money tell their friends and family and encourage them to invest. They post testimonials online, sharing their success stories. They organise large community meetings all over, sharing their stories of quick riches and encouraging more people to join. The hype continues to increase and the pyramid scheme continues to grow.

The problem is that because you need to grow membership by at least 20 times per year, you are going to run out of people at some point and once that happens, at least 20 out of 21 people are going to lose their money. Let me explain the difficulty. If a scheme starts with one investor in year 1, by year 7, you will need 64 million people to keep the scheme going. The next year, you will need 1.3 billion people (almost 20% of the world population). By year 9 you will need 26 billion people. Do you see the problem?

So why do people invest in these pyramid schemes? They do so because they are desperate, uninformed or greedy. It doesn’t matter what your motivation is, the outcome is not going to be good. You will most likely be one of the unlucky ones, the 20 out of 21 people who will lose their money. If you are very lucky, if you get in early enough, if you make your returns and if you take your money out soon enough, you will only achieve this because you are hurting other people. Your actions will mean that many people who invest after you will lose their money. It may not be next month, it may not be next year, but it will happen eventually. How would you feel about that? How would you feel if you get rich because of many other poor and vulnerable people losing their money? Will you claim ignorance? Will you say, “it’s not my fault”, “the company lied to me”, “I didn’t know”? If you read this piece or others like it, please know that you have been warned.

I have seen schemes promoting themselves and people on social media defending these schemes, choosing to vilify the banks, to discourage people to use normal banks and to encourage them to invest in schemes instead. Comments include: “Why do the people bring their money to the banks at the exorbitant interests? Because they have no other choice. Banks are monopolists”; “Why should banks worry if citizens choose to be ripped off? Banks the thieves”; “Today’s banks are faithful servants of the Federal Reserve; they are greedy and avid bloodsuckers, small ghouls in the service of a giant and evil monster, modern earl Dracula”; and “free yourself from financial slavery”.

Whether or not banks are offering you a good deal is a different debate. I have written about this before. There is certainly more that can and should be done by banks to help the most vulnerable in society. However, please do not allow yourself to be sucked into a dangerous and unsustainable pyramid scheme that is likely to cost you dearly or cause you to hurt others, simply because you are unhappy with ordinary banks. Please remember, if something looks to good to be true, it probably is.


Are you invested with a high-return scheme or are you thinking about it? Where do you think these high returns are coming from? Does it make sense to you? If it doesn’t make sense to you, do you care? Are you aware that you could lose your money? Did you know that if you make money, it is likely because other people are going to lose their money and be hurt? Would you still invest if you knew you were going to hurt others? I would love to see your opinion.

In the mean time, keep your talking straight!


#PyramidScheme #PonziScheme #Stokvel


Marius Strydom is the CEO of MLAX Consulting

  • Marulo22980

    I shared your article to my companies facebook page and added the following in my post.
    “Thats why the saying goes, “If its too good to be true then it usually is”
    My previous shared post on the MMM group is an example whereby I was invited to such an event. But I was invited under the auspices that this was about business networking. So I believed it to be about forming a new network for business owners to work and share work together. However, I found out as the meeting began and progressed was that this was a sales meeting where they spoke about all the different schemes they had to make money. All of it with massive returns, within 2 or 3 months. There was about 30 or 40 people there. Out of all those people, myself and another gentleman were the first 2 out of the door without discussing anything with anyone. We already knew what this whole thing was and wanted no part of it. And after wrongful advertising as well.
    So many people get fooled into these schemes, and no matter how much media attention it gets, there always seems to be people gullible enough to fall for these things.
    Be careful and vigilant at all times.”