by George Tucker

Created on: April 04, 2009   Last Updated: April 06, 2009

How high-yield investment programs (HYIP) work

Returns of 45% per month? Or perhaps 6% per day? A guaranteed revenue stream that's safe from market fluctuation, with the return of the initial investment guaranteed?

If this sounds like a fantastic investment, you're right - it does. If it also sounds too good to be true, alas, you're right again. However, promises and guarantees of outrageous returns like those listed above are common among high-yield investment programs. These scams lure investors with promises of astronomical returns while providing virtually no detail about the underlying management, investment method, or types of financial instruments used. In truth, all HYIP are scams of the Ponzi variety. Investors who are lured into the HYIP deposit money. This money is used to pay off previous investors, and of course a percentage is kept by the HYIP scammers.

The HYIP continues until the flow of new funds dries up - or until investors wise up and try to withdraw their funds. That's when the HYIP crashes, its website goes down, the customer service emails go unanswered and the phone line rings and rings (or is disconnected).

HYIP scams are becoming increasingly common thanks to the combination of secure e-gold-type payments and affiliate marketing. This article discusses how to recognize HYIP scams and how to avoid them. How to spot a HYIP scam HYIP promotion is remarkably similar to other types of financial scams. The following list of red flags applies for HYIP as well as for any other type of program that solicits your money.

- Promises of above-market returns without risk The typical HYIP offers returns ranging from 1% per day to 45% per month. Although there are legitimate investments that can make a several percent move per day (during particularly volatile periods, individual stocks can rise or fall 30% in a single day!) there is simply no legitimate investment that can offer returns this high on a regular basis.

- Promises preservation of capital plus high returns Preservation of capital means that your initial investment is safe. Therefore, all interest you are paid is sheer profit. In fact, your capital is far from safe. However, HYIP scams have learned that by promising that your original investment will be preserved they can convince most investors to leave their money parked within the HYIP until it crashes. This keeps the scam running, and making the scammers money, longer.

- Registered offshore, in the Caribbean (or, less frequently, emerging

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