Are HYIPs worth the risk?

High Yield Investment Program or HYIP is self-explanatory. HYIPs are investment schemes that offer investors a chance to earn a much higher revenue from their investments. The potential returns can be many times more than you would receive from the same investment in mutual funds, stocks or unit trusts. But, as we all know, more money means more risk involved.

Online HYIPs became popular with the introduction of various e-currencies that facilitated easy transactions of monetary value. The most popular is e-Gold, with its low transaction fees and a value that is 100% backed by gold (The rising price of gold has only served to boost its popularity as an e-currency).

Unfortunately, the lure of HYIPs has created a serious problem... scam HYIPs.
According to a few reputable websites, scam HYIPs & ponzis make up to 95%-99% of all HYIPs online.

Legitimate HYIPs are usually involved in high risk and speculative ventures. This may include Spread Betting, Forex Trading and Commodities trading - Oil and Gold trading is especially lucrative, but risky. Some diversify into property investments, stocks and other financial instruments, in order to ensure some income stability. These programs offer up to 1% daily return on investment (ROI). Some offer even more, but are generally more risky.

Even legitimate HYIPs can collapse. There is always an element of risk in any investment, and this is even more so with HYIPs. Here's a scenario. Some bad investments may limit the available funds in the HYIP. Delays in payment leads to Internet speculation and rumours spreading like wildfire. Investors decide to play it safe and take out their money, leading to a surge of withdrawals. The HYIP lacks the capital liquidity to fund the withdrawals, which worsens the situation. This leads to these sites being labelled scams and frauds, when in actuality, it is a lack of liquid capital.


Scam HYIPs, on the other hand, are typically ponzis or pyramid schemes. The scam artists attempt to portray themselves as legitimate traders, promising lucrative returns.

"Double your money in 1 day!"
"Earn 120% of your investment in 1 day"
"150% return in 3 days"
"200% of your spend in 4 days!"

We've seen hundreds of these. All of them claiming to make people rich. And people get sucked into it. Scam HYIPs can be addictive. The promises often don't last long. As soon as the scammers make enough from the scam, they shut down the site. Some are even more devious; they change the investment plans to encourage bigger investments and to perpetuate the belief that it is a long term HYIP. The late investors typically lose out. "A sucker born every minute", or so the saying goes.

So, why do people continue to invest? Or even promote HYIPs? That's because of the lucrative referral bonuses. Some sites offer 5%-20% of referral spends! Imagine, if you refer 10 people, who spend $10 each. With a referral bonus of 10%, you would earn $10!

Therein lies an ethical dilemma. Do you promote a site which you know is a scam, because you stand to make some money from it? And if you do, doesn't that make you as guilty as the scammers?


References:
http://en.wikipedia.org/wiki/HYIP
http://hyipguide.info/


Update: Please do have a look at my follow-up article:
HYIP Strategy for the Cautious