Understanding High-yield Investments

High-yield investment programs are a means of earning money by promoting a business online. Typically, a company convinces people to sign up and get paid to promote a new product or service, , either via email, forums, or their own websites. These people usually invest in promotional materials, which they will use to recruit more members. The more people they bring in, the more money they are promised.

However, high-yield investments have gained notoriety in recent years because of financial scams. In fact, investors regard it as a shady business on the same level as its offline counterpart, the pyramid scheme. But not all high-yield programs are scams – there are some good, legitimate ones out there that can be a stable source of income.

Risks and rewards

Most high-yield investment programs offer interest rates of 1% daily. That means your investment will grow by 1% every day – a large amount compared other investments, which have annual interest rates. Other high-yield programs claim to make as much as 200%; the largest gain was allegedly 1,001%. In reality, however, it is hardly possible to hit a 1% daily interest rate legitimately. Even one of the most successful investors, Warren Buffett, made only 0.1% per day during his peak.

High-yield investment programs are often unsustainable because only a small percentage of the members will actually buy the product or service. Many people have been lured by the promise of high-yield investments, but as more members come in, the project becomes less and less profitable. Even in the best case scenario, only those on top of the “pyramid” will have made actual high-yield investments.

“Transparent” programs

In 2006, a supposedly safer type of high-yield investment was introduced. The main difference was a clearer definition of the terms of the program – it was made clear that there were no guaranteed earnings, and that part of the deposits would be used for the company’s operating expenses. For example, an owner may promise to pay out 95% of your deposit, while the rest goes to rent, web hosting, or his own income.

In this system, the first few high-yield investors will get good returns, and once they earn back their deposits, they get encouraged to bring in other people. Theoretically, this scheme can work because as more deposits are made, more money is available to pay out the members. It also follows that the earlier you participate, the more profitable it will be for you. But there is usually no way of knowing your place in the pyramid, which makes these high-yield programs more like a game of chance.

Spotting scams

One sign of a legitimate high-yield investment program is a tangible contact – a person that you can actually talk to. The internet has made it all too easy for scammers, so you must be more wary of online programs. The owner’s website must have working contact details, such as phone and fax numbers, email, and a real office address.

The earlier (non-transparent) type of high-yield program often deals with offshore trading, banking, or some other investment, and promise rates that are too good to be true. While high-yield investments offer higher returns than normal, eye-popping rates such as 80% are suspicious.

Doing prior research is always good practice for any investor. Look up the company’s reputation, history, and business details. If you can, check with authorities such as Better Business Bureaus. These usually keep an eye on high-yield investment programs and other controversial businesses.