Seeing through fraudulent promises of high returns


Tracy Coenen recently wrote about the dangers of affinity fraud -- shameless con-artists who infiltrate religious and cultural groups and take consumers for million dollar rides with lofty promises of high returns in an investment that turns out to be nothing more than a Ponzi scheme.

Tracy wrote that "It's not unusual for a company to say they're paying investors 5% or 10% per month on their investments. . . If you're presented with one of these opportunities that sounds too good to be true, run quickly in the other direction. They are always are too good to be true."
Here's another way to think about that: if someone has an investment method that can earn them returns high enough to pay out 5-10% per month, why do they need your money in the first place? If they have a foolproof method for compounding cash at that rate, banks will be lining up to invest in them. They could take out cash advances on their credit cards -- these brilliant investors could achieve a lower cost of capital with payday loans!

Anyone with a legitimate method for earning outlandish returns wouldn't need to guarantee those high returns to investors -- simple as that.