Pessimism lingers in the air as Singapore’s job market remains challenging.

In the previous article, we have discussed the phenomenon of fresh graduates expecting a lower pay and what it means. Looking beyond that, one can notice that not only fresh grads but everyone who is concerned with money, face a growing sense of insecurity.

As a result, many feel an increasing need to constantly improve and upgrade their skills while being willing to receive a smaller paycheck.

But also beware that some people or organisations can sense the insecurity of others like how sharks smell blood, and they will set deadly traps for you upon knowing your fears and insecurities.

“Forget about a mediocre 9-5 day job,” they say. “Make your money work for you through investments! Join our ‘business’ that will make you financially free in no time!”

In this article, we look into the two ‘P’s, namely, Ponzi schemes and pyramid schemes, that you should avoid and how you can identify them.

Ponzi Scheme



Investopedia’s definition

“A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. For both Ponzi schemes and pyramid schemes, eventually there isn’t enough money to go around, and the schemes unravel.”

Signs/red flags

  • The company promises extraordinarily high “guaranteed” returns (e.g. >20 percent per annum)
  • They emphasise that it’s “risk-free” (contrary to common sense that higher returns typically come with higher risks)
  • You have little idea how they can generate such high returns – their business models are kept secret, too vague, or overly complicated
  • The “investment” company fails to deliver statements to you regularly
  • The investment products are based in foreign countries (thus you are unlikely to go there to verify)
  • The seller is unlicensed but he/she may also receive very lucrative commissions
  • You receive overly consistent returns regardless of overall market conditions
  • The company does not pay you on time or tries to prevent you from cashing out

Notable examples

Sunshine Empire, Genneva Gold & Valiant Capital, EcoHouse Group, Profitable Plots

Pyramid Scheme

Source: Wikipedia

Source: Wikipedia

Investopedia’s definition

“A pyramid scheme is a variation of the Ponzi scheme, which offers a promise of high investment returns that are not available from traditional types of investment. In practice, the structure of pyramid schemes induces others to recruit victims and collect money that eventually makes its way to the top of the pyramid. In a typical setup, one person recruits a second person to invest a certain amount of money. The second person recovers his investment by recruiting people under him to invest in the scheme. The more people he can recruit under him, the greater his profit and a certain percentage of the profits of all recruiters work their way up the pyramid to enrich the recruiters before him. Each person must recruit a certain number of people. The process continues until there are fewer people at the bottom of pyramid, and it collapses under its own weight. Generally, only the people near the top of the pyramid make any significant profits, and people near the bottom never recover their investments.”

That being said, a pyramid scheme can often exist in the name of Multi-Level Marketing, also known as MLM. The tricky part is that the latter is legal, though it may be essentially operating in pyramid style (albeit much denial).

Signs/red flags that the MLM program is actually a pyramid scheme

  • Your income is based mainly on the number of people you recruit, but either you don’t have any tangible and quality products to sell or you have to sell overpriced products
  • There are lots of additional costs – you may be required to buy large amounts of inventory to sell, and pay for course fees, sales materials, rentals, mailing lists, etc., just to stay in good standing with the company. Though the claim is that these are necessary and the opportunity costs are low, many lose money when they sign up for such schemes
  • You find the business model and compensation plan complicated and confusing, or not justifying the cost that you incur by joining the scheme (Work out the math yourself to see if it makes financial sense)

Regardless of the industry or business, one overarching similarity between the two abovementioned schemes is that the schemer and the earliest investors/recruiters benefit at the expense of the later ones. Chances are, by the time you’re invited to join/invest in the scheme, you are already at the bottom of the pyramid, and the bubble is close to bursting.

Undeniably, we like the idea of earning passive income while having to do little or no work.

Who wouldn’t want to receive a free flow of money while enjoying a free flow of drinks on a vacation?

Who wouldn’t want to receive a free flow of money while enjoying a free flow of drinks on a vacation?

This is exactly the kind of pictures that scheme owners like to paint for their victims. Because they know that humans tend to let their greed and laziness get the better of them.

But hey, even Warren Buffett does his “homework” every day, so what makes you think that you can get great returns without putting in the effort to research?

In reality, those who join the scheme later could have been better off doing anything else. Take Herbalife for example—99 percent of distributors under its MLM business model make less than half of the minimum wage, according to

So why do so many people still fall prey to such schemes then, when the unpleasant statistics are just a Google search away? Perhaps, we can blame optimism bias, which causes us to believe that we can do better than average.

On top of that, members of the abovementioned schemes aggravate this bias by telling new members how their lives will change.

Strictly speaking, they are not wrong, though the change might not be what you’ve wished for, had you fallen into the trap of the 2 ‘P’s.

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