In recent years, HYIP investments (so called ‘High Yield Investment Programmes’) have become popular amongst investors who are tempted by their apparent very high yields. HYIP stands for High Yield Investment Program, and you’ll find many of these available if you simply search on the Internet. If you were seduced by Expert Advisors and Forex robots (as the idea of large gains with no effort is certainly appealing), but have come to realize from the analysis above that a machine or software cannot necessarily be relied upon, then you may think that a managed account, such as the HYIP, can still provide the answer you’re looking for without having to do any work.
There are review sites on the Internet that seem to validate some of these accounts, while pointing out those that are obvious scams. What you need to understand is that many if not most of these programs are not sound, and the only reason that they appear to be working is that they haven’t come to a crunch point yet.
If it’s been said once, it’s been said a million times, ‘If it seems too good to be true, it probably is’. Yet something in the human psyche wants to believe that maybe this time you have discovered the answer. While a typical successful managed investment plan can return 15% to 25% each year, easily beating the market interest rates, many HYIPs claim far higher returns, sometimes as much as 200% a year.
Risk
First you have to realize that even genuine HYIPs are based on a much higher level of risk than other managed investments. Given the same standards of skill and expertise of the advisors, the relationship that a higher potential return requires a higher risk holds true. To actually evaluate whether you want to invest in high-risk programs, you have to consider what risk really means.
The question is what type of risk you are prepared to take. On the one hand, there is the risk that the investments may not perform as well as hoped, or even as well as a safer investment such as CDs. But the type of risk usually involved with potentially high yield investments can be much more dangerous than that, resulting in negative returns or even complete loss of capital. So even with genuine high yield programs you have to be aware of the potential for loss.
Derivatives in all forms provide a good example of this. The leverage available which can lead to multiplied profits can also work against you to wipe out your account. Consider the example of options. These provide a very clear-cut illustration of how high yield can also mean high loss. When you buy an option, it is in the expectation that the underlying share or other security will change in value to your favor by the time the expiration date comes around. If you are right, your profit is many times the cost of the option. If you are wrong, the option expires worthless and you have lost your total investment.
So the question is whether you want to be in control of where your money is invested, or whether you want to hand that control over to a stranger who may try hard, but doesn’t personally lose from making the wrong decisions for you. When you come down to it, it’s very similar to handing control over to an Expert Advisor, as you still don’t know what is happening to your money but only see the results.
While on the topic of risk, you should note that unlike many other financial products HYIPs are not regulated by the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, or the United States government. While civil actions can be taken against explicit fraud (provided the perpetrators are found), there are no particular protections offered.
How It’s Done
For the genuine HYIP, the Forex market is a favorite investment vehicle. Often, HYIPs are used by large investors, but small investors are accommodated with funds that are pooled together to take advantage of larger investment opportunities. In this way, they are similar to the mutual fund industry, but without the benefit of regulation and oversight. The Forex market is suitable because of the large amounts of cash being invested, the 24-hour market, and the volatility that allows for good profits.
Any investor in an HYIP would do well to find out the type of risk entailed, and what the expected upside and downside are likely to be. While the upside is probably well publicized, the downside risk may be hard to discover. You should also see how difficult it is to withdraw money at any time, and other restrictions on the funds. If the money is moved out of your name, then you want to check on the institution where the account is held.
How It Shouldn’t be Done
The HYIP industry is rife with scammers. Wikipedia, which admittedly is no authority, makes no bones about it by saying, “A high-yield investment program (HYIP) is a type of Ponzi scheme, which is an investment scam that promises an unsustainable high return on investment by paying previous investors with the money invested by newcomers.” The Internet makes it easy for scammers to appear genuine and authoritative, even to the extent of copying all or some of the websites of legitimate companies.
If you are still intent on investing in an HYIP scheme, you need to exert the highest level of diligence. You can use the Internet for a lot of research, but you know that many scammers will create false recommendations on forums under a variety of names, so this cannot be trusted. If there are named experts in charge of the scheme, you can look up their background and check their credentials to ensure they are legitimate. You should be concerned about any unexplained breaks in their backgrounds.
If you can visit the administration offices, then you can see for yourself how the fund appears to be managed. Take along a friend as a witness and for help in remembering the details. If they don’t want you to bring a colleague, or they press you to sign up on the spot, these are big red flags. For a genuine investment company, a professional should be happy to talk about the types of investments, the risks, and the management fees involved.
If you have any concerns, then you should take your business elsewhere. You shouldn’t, in any case, consider putting money that you need into the High Yield Investment Program because of the inherent risks. If you are a gambler, then this type of financial fund may appeal to you. But again, do you really want to put your savings in the hands of someone else, hoping that they will make the right decisions for you?
