How to spot and avoid Ponzi Schemes


This week, I read a heartbreaking article about a grandson investing a large sum of money for his grandmother in a Ponzi scheme.

Sadly, I have seen many of these schemes in my decades in the industry. So why do people fall for these scams?

Let me share the main reasons why and two key things you can do to avoid a Ponzi scheme so that you or your loved ones never have to experience this.

why do people still fall for ponzi schemes

Before we dive in, it's important to understand why people are attracted to these scams.

No doubt you've heard the saying, 'If it's too good to be true, then it probably is?' Never has a more accurate statement been said when it comes to Ponzi schemes.

I believe the main reason people get caught in these investments is because they have no way of measuring what is too good to be true.

How much is too much? With every Ponzi scheme, the story is the same way in that we're told we can make very good returns.

But what they really hear is that they will make a lot of money in no time with very little effort, which we know sounds too good to be true.

What happens next is that the person getting scammed makes no effort to stress test the investment through proper research or due diligence. Instead, they focus on how much they'll make and ignore the risks.

This is usually because they are asked to participate by people they trust, which could be the person running the Ponzi scheme or a friend or family member who has already invested.

As a consequence, they drop their guard because they're told they need to be quick, so they don't 'miss out'.

If you aren't willing to do the research to pick apart the opportunity presented or you have FOMO, then, unfortunately, you might just be the type of person who could fall for a Ponzi scheme.

So, what are the two ways to avoid them?

Firstly, and most importantly, check that the business is registered with the Australian Securities and Investments Commission (ASIC).

You should also request the company's Australian Business Number (ABN) or Australian Company Number (ACN) for further verification. You also need to verify their claims independently and question unusually high returns.

Secondly, seek out an independent expert like an accountant or financial planner and let them look at the opportunity. If they smell something fishy, do not invest. You need to pay attention to the warning signs that it's too good to be true.

If you suspect fraudulent activity or believe you have fallen victim to a Ponzi scheme, then report it to ASIC or the Australian Competition and Consumer watchdog.

What are the best and worst-performing sectors this week?

The best-performing sectors include Materials up more than 3%, followed by Energy up more than two% and Financials up more than one%.

The worst-performing sectors include Healthcare down just under one%, followed by Consumer Staples and Utilities, which are both down under 1%.

The best-performing stocks in the ASX top 100 include Bellevue Gold, which is up more than 18%, followed by Ampol Limited and A2 Milk, which are both up more than 6%.

The worst-performing stocks include Medibank Private and NIB Holdings, which are down just under 4% followed by Lendlease Group which is down just more than 3%.

What's next for the Australian stock market?

This week the All-ordinaries index is up more than 1% with the buyers stepping in at the 7900 level to take the index higher.

Remember, last week, I mentioned that 7900 was a potential reversal point and while the buyers have agreed so far, I would like to see a continued push upward to break above the all-time high of last week.

If this occurs, I can confirm the All-Ordinaries index has formed the short-term low I have been anticipating, and that the market will continue rising up to the 8200 to 8400 point range in the near term.

I have also spoken about setting yourself up for the next opportunity to buy following the short-term pullback, so this week let's look at some sectors that held up well and are set to benefit from the next move up on our market.

The Materials and Energy sectors have stood out, posting some of their biggest weekly gains last week.

Bear in mind that the market also recorded its biggest one-week fall for 2024 last week.

Right now, it's clear that money has been flowing into these two sectors while the market was falling, which tells me that if you are looking for good value, these are the sectors to focus on.

Some notable names in the Materials and Energy sectors that have the potential to do well in the next month or so include Woodside Energy Group, Santos, RIO, BHP and Fortescue Metals.

Get stories like this in our newsletters.

Related Stories


Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.