March 2009



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44140130_5094937001_1217b-yourmoney-ponzi-sj-businessImagine how you might feel if you had entrusted all of your hard earned savings into a high-stakes investment, just to find out later that you had lost it all and had been taken advantage of! Well, that is exactly the sort of thing that often happens with a Ponzi scheme! But what exactly is a ponzi scheme and how can you avoid being duped by this dishonest business practice?

The Ponzi Scheme Definition:

A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by later investors rather than from actual earned revenue. The scheme is named after Charles Ponzi, who became famous for using this technique in the 1920s. He paid investors 50% interest on short-term investments with money from new investors. All the while, spending a good part of the incoming funds for personal purposes.

Ponzi did not invent the scheme, but his operation took in so much money that it was the first to become known throughout the United States. Years later, Ponzi Schemes are illegal but continue to operate on the “rob-Peter-to-pay-Paul” principle, as money from new investors is used to pay off the previous investors in a continuous and destructive cycle until the whole scheme eventually falls apart.

What to look for and how to avoid a Ponzi Scheme:
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462961b2-00345-049d3-400cb8e1_cyvzubkw4x1mThe year 2008 has entered the record books for all of the wrong reasons; the Dow Jones had its worst year ever! So what about 2009, how will stock markets from around the world perform and which are the stocks to follow?

Well in reality you need a crystal ball to be able to answer these questions. 2009 may well be another tough year.

I am a person who enjoys investing on the stock markets and I have to say that I am a bit of a gambler; I am quite prepared to take a risk with my disposable income in the hope that I can increase it etc. Just a quick note however, I am a financial adviser and anything that I write or suggest in this article should not be seen as advice.

I personally believe in investing an amount of money (an amount that I can afford) on a monthly basis instead of investing lump sums. This way I am able to take advantage of what is commonly referred to as Dollar cost averaging in the United States. This is where when prices are high your monthly contribution may buy fewer shares or fund units but that when prices are low your investment buys more shares or fund units.

During these volatile times this method of investing may prove to be the most prudent. Even though stock markets had a very poor 2008 and is therefore quite low there may well be significant falls ahead.
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Let’s say the U.S. government completely nationalizes AIG, so that the new entity now shares the government’s AAA rating.