How to Recognize a Ponzi Scheme


A Ponzi scheme is a fraudulent investment. The organizers of the scheme do not invest your money in something with intrinsic value. Instead, they pay you a "return" with the contributions of new investors. Ponzi schemes received their name in the 1920's after Charles Ponzi was convicted of running this type of business. Despite all the knowledge we have of previous Ponzi schemes, they continue to defraud people from all walks of life. We are even seeing a new wave of Ponzi schemes involving virtual currencies, such as Bitcoin. Here is a summary of what to look for to protect yourself against Ponzi schemes:

High returns with little or no risk.

All investments, especially those expecting higher returns, involve risk. Be suspicious if someone is selling you an investment that allegedly defies the odds.

Unusually consistent returns.

Investment values go up and down on a daily basis. If your investment generates regular, positive returns, regardless of the overall market, that is a red flag.

Unlicensed sellers.

Most, but not all, Ponzi schemes involve unlicensed individuals or unregistered firms. Research your Broker or Investment Advisor to confirm they are registered with the SEC or required state regulators.

Unregistered investments.

Ponzi schemes typically involve investments that have not been registered with regulating authorities. By not registering, they can avoid disclosing details about the company's management, products, services, and finances.

"Black box" strategies.

Don't invest in something you don't understand. It is not a good sign if your Advisor grows irritated with your questions or treats you as if you don't understand something that is obvious.

Lack of detailed or complete paperwork.

You should be able to read about an investment in writing. Confirm the paperwork is detailed and complete without spelling and grammatical errors.

Difficulty receiving your money.

As the pool of investors grows, it becomes increasingly difficult to recruit enough new investors and contributions to keep the scheme running. Therefore, the organizers may encourage you to re-invest your return versus withdrawing it. They may also become more aggressive with their sales tactics and encourage you to tell your friends and family about the investment. If you were told the investment was liquid, but you are unable to retrieve your money in a timely matter, or without significant penalties, that is cause for concern.

Unfortunately, if you are caught up in a Ponzi scheme, there is no guarantee that you will get your money back or that the perpetrators will be prosecuted. There are many reasons for this, one being that the statute of limitations on financial crimes is five years. PWR is fighting to get this extended, but the reality is that many people don't realize they have been defrauded until year two or three, leaving insufficient time to complete the necessary legal proceedings. Therefore, the best way to protect yourself is to avoid a Ponzi scheme altogether.


Ask Linda: Is it safe to have all of my money at one Brokerage firm?

Ask Linda: Is it safe to have all of my money at one Brokerage firm?

I remember being told that I shouldn't keep more than $250,000 at one bank since that is the FDIC insurance limit. What about my money at a brokerage institution, such as Schwab, Vanguard, or Fidelity? Should I spread my money out across brokerage firms as well?

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Impact Investing: Creating a Strategy


Impact investing offers similar, if not better, returns than traditional investing with the added benefit of creating positive social and environmental change. That being said, creating an impact investment strategy does not have to be a major shift from what you are already doing. We recommend a top-down, holistic approach to impact investing versus divesting from companies or industries in an ad hoc manner, which can lead to underperformance. At a minimum, it can mean the inclusion of environmental, social and governance (ESG) ratings in the portfolio construction process. ESG ratings offer an additional layer of due diligence which has shown to increase returns, reduce risk, and encourage companies to be more transparent with important metrics that haven't traditionally been tracked. For example, we can now analyze how vulnerable companies - and therefore, portfolios - are to changes in regulation, commodity price fluctuations, or fraud in a consistent, systematic way. As of the end of 2017, two-thirds of asset managers were in the midst of integrating ESG criteria into the portfolio management process.

ESG ratings and rating changes (known as ESG momentum) are proving to be invaluable during the portfolio construction process. Here are two examples of controversies that were proactively flagged by ESG rating agencies:

Investors can obtain free ESG rating information. To demonstrate an example, let's use "SPY", which is an exchange-traded fund (ETF) that seeks to correspond to the yield and price performance of the S&P 500 Index.

  • Go to and type "SPY" into the search field. Scroll down to the middle-right part of the page to see the Sustainability Rating, Score and Percent Rank in Category. The data is updated on a monthly basis from Sustainalytics. Read more about Morningstar's Sustainability Rating methodology here.

  • Many investment advisors have access to MSCI's ESG ratings on paid platforms, but others can view the ratings free for ETFs. For example, go to ETF.comand type "SPY" where it says "Search". Click on the first link generated for the "Free Real-Time Quote." Scroll down to see the "SPY MSCI ESG Analytics Insight" which includes the ESG Fund Quality Score and Percent Rank in Category. Read more about MSCI's ESG Rating methodology here.

There are low-cost, passive, index funds that apply an ESG screen. Here are a few examples:

Recognize that there is more to impact investing than just ESG ratings - but the ratings are a good place to start.

  • There are a variety of ESG rating providers and each has their own unique methodology. Therefore, ESG ratings may differ for the same stock on different platforms, depending on the source.

  • Likewise, Fidelity's definition of a "sustainability index" is likely to differ from Vanguard's definition of a "social index fund." You need to dig deeper to understand how their methodology and composition varies.

  • There are other, non-ESG rated vehicles that can meet your financial goals while also having a positive social and environmental impact. For example, there are cash and fixed income alternatives that will invest your money in underserved communities or micro-finance institutions domestically and abroad. There are real estate investment trusts (REITs) that focus on net zero energy buildings, affordable housing, and transitioning conventional farms to organic practices.

At a minimum, use ESG ratings as an additional tool when creating your investment strategy. It makes good financial sense to put your money with companies willing to be transparent and to make investments now - whether it is with time, capital or resources - to ensure they are well positioned for the long-term.

Work with an advisor educated on impact investing to help you create a custom strategy that meets your needs. For more information on impact investing, check out our related posts, such as Impact Investing: The Lingo and Impact Investing: The Myths.

The companies and investments listed are for illustrative purposes only and are not recommendations by Planning Within Reach, LLC. Conduct thorough due diligence before making any investment decisions and remember that past performance is not indicative of future results. No investment is without risk, including the loss of principal.

Impact Investing: The Myths

Impact investing opportunities continue to grow with one of every five dollars being invested sustainably as of 2016. Regardless, there are myths about impact investing that continue to persist, despite evidence to the contrary. For our second post in a series on impact investing, we debunk these common myths.

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