Not All Sites Can Be Trusted
Posted by Gail | Filed under In the News, Investing
Remember that this week’s prize for sending in your “I Need Ideas” post is a Moonjar gift. It will be awarded by random draw from the entries received between Monday and Friday this week for the Success Posts, so you only have two days left to qualify.
I check the stats on my site each morning just before I post my next blog to see where the traffic on the site is coming from. So this morning I noticed an influx of hits from theinvestblog and popped over to look if there was a link. It’s a bogus blog set up to capture people’s interest in a company called aimtrust which purports to offer huge amounts of return – up to 3% PER DAY. Hello! Welcome to a Ponzi Scheme.
A Ponzi scheme – named for notorious fraudster Charles Ponzi — is a deceptive investment operation that pays returns to its investors from their own money or from the money brought in by subsequent dopes. There’s never any profit earned, except of course by the guys who started the scheme and walk away with millions. The idea is to bamboozle a bunch of investment newbies and take off with the money. Sadly, it works.
The big signal for a Ponzi scheme – or anything smelly like the Bernie Maddoff affair – is that rates of return offered are much higher than we poor sods can get anywhere else, suckering in folks who are tired of earning a pittance on their money.
There’s an old saying on Wall Street: “Bulls and Bears make money. Pigs get slaughtered.”
One reason that these fraudulent schemes work is that the folks who get in early actually do get paid the large returns promised. They then turn around and reinvest in the scheme. In the end the charlatans running the scheme don’t actually have to pay out very much at all, leaving them fat and happy. All they have to do to keep their “investors” happy is send out statements showing how much money they’ve made and the money keeps rolling in.
The Ponzi scheme depends on an ever-increasing flow of money from new investors in order to keep the scheme going. When the stream slows, the pyramid starts to crumble and the piggies that came to the trough late in the game lose everything!
Since the internet is the most efficient way of disseminating scams, the latest Ponzi schemes are using high volume blog and referrer spam at the same time. Sadly, the internet is awash with small Ponzi schemes trolling for small fry investors who are too greedy for their own good.
The creators of my most recent discovery are no dummies. Using the word “trust” in their name “aimtrust” makes people feel safe while the hucksters pass themselves off as a regulated investment house. And this is the first lesson for would-be investors in anything that seems too good to be true: check and see if the organization is legitimately registered with your region’s investment regulators. If the answer is no, you can bet your brother that the site is trying to mislead and defraud investors. In the case of theinvestblog, it’s apparently being hosted in Belarus, a former state of Russia that has become notorious for internet fraud.
Perhaps the thing that is funniest to me is that theinvestblog has a bunch of comments. In trying to make it look legitimate, these dopes have chosen to create those comments in very bad English. While all these comments indicate people are making bags of money, apparently, their grammar is a guarantee that other people will buy their authenticity.
Things are never as they first appear in life or on the internet. And the investment world is rife with crooks who are happy to take your money. I’ve had an influx of questions recently from people who want me to validate investments they’re being offered. I’m not about to start doing that. I will say, however, that if the return you’re being offered seems like a dream come true, you could wake up trapped in a horrible nightmare. Consider yourself warned.
August 27, 2009 at 9:15 am
We’re all at risk when it comes to frauds and scams, but when it comes to your money, it’s important to remember TANSTAAFL – there ain’t no such thing as a free lunch. Building wealth requires hard work, and that’s a fact. And opportunities to earn a higher return on investments are going to come with higher risks attached – there are no guaranteed investments that pay huge sums of money. People who wish to avoid these truths and get rich quick are always going to be in for some big disappointments.
August 27, 2009 at 9:17 am
By the way, I hope you don’t mind if I ask a question that is off topic from today’s post. I am wondering about the transportation jar – if you drive a car, does the money in that jar that only go to gas and parking costs? I’m assuming that fees like car payments and savings for car repairs fall under fixed costs and savings respectively?
August 27, 2009 at 10:05 am
SQ, If I’m not mistaken, from watching TDDP shows it seems car payments, insurance, gas & parking are included in the (“s/b”) 15%, which I’m sure alot of people would find scary if they were to abide by the %s. Interestingly, looking at other sites’ breakdown, they typically show around 18-20% for “transportation”. But of course, Gail would be better at defining the targets. I don’t think she would consider car payments as “debt”, although of course, if you’re low, that bucket could be transferred to “transportation”.
Repairs though would fall under “planned saving”.
August 27, 2009 at 10:09 am
If the above point is true – food for thought:
$3,000 (monthly net) x 15% = $450/month for payments, insurance, gas & parking
Yikes!
August 27, 2009 at 10:37 am
SQ: the money in the transportation jar is for gas, repairs, parking and tolls etc…. so some is to accumulate over time for maintenance and repairs. You’re right that the car payments fall under “fixed” expenses, as do insurance, car tags, license. If you want to keep your maintenance money in the bank, then transfer that money in a “planned spending” savings account, track it manually so you know how much you have, and you’ll be all set when the time comes for an oil change.
August 27, 2009 at 10:42 am
Erran: I know people find the %s a little scary. There are folks in some part of the country who, because of high real estate costs, are spending 50% or more on their housing. Hey man, that’s life! It means you have to find other places to cut back because, ultimately, you can’t spend more money than you make. Or you can always Make More Money. Of course, if you have no debt — yipee!!! — the money allocated to debt repayment (15%) could be reallocated to cover higher costs in some categories of your budget. If you think the idea of only spending 15% on transportation is scary, think of all the people who have kids in day care and are watching their LIFE category zoom through the stratosphere. The whole key is to try and balance the ins and the outs… shuffling the percentages is fine if you’re not overspending. But if you are going into the red each month, those percentages will tell you where you need to rethink your spending.
August 27, 2009 at 11:39 am
Thanks Gail and Erran! I’ve allocated a certain amount of savings required each month for car repairs under the planned spending portion of the budget, so my budget for transportation will just be for gas and misc. costs associated with driving like parking.
August 27, 2009 at 11:41 am
Thanks for the clarification, Gail, SQ, et al. Our bottom line is fine (yay!) but our percentages are off due to where we live (one of those places with ridiculous housing costs) and some things we can’t control (life category is above what it should be as our food budget is high, working around dairy allergy). And self-employed hubby means our insurance costs are a fair chunk each month–we have no company benefits. I knew that making it balance was the key, but was worrying somewhat about percentages being too high in some areas (though we are debt-free so have that 15% buffer to play around with). Letting go of worry now.
And I will say I find the percentages to be one of the most useful things I have learned from your show and this site. Only wish I had learned it years ago!
August 27, 2009 at 12:07 pm
The too-good-to-be-true deals always make me wary. Thank you for the warning, they are getting so slick and sneaky these days!
I even went so far as to change my investments all to a different company because my rep got changed so often! Everytime I called, my account was being held by someone new, and they had never called me to say hello. That overstepped my trust with them. I want stability in my money relationship, so I found a “lifer” as she put it, that seemed genuinely interested in HELPING us get to our goals not just collect as many portfolios as possible…. actually she reminds me of Gail a bit, straightforward, and still fun.
August 27, 2009 at 12:56 pm
We started with a financial planner years ago – and when our planner left the company, we were in the same position as *pol – no one called and let us know what was happening. It was like we were just a portfolio – not personal. So, we began looking elsewhere for planning and now have a friend who is a planner for a very good company. He is straight forward and doesn’t tiptoe around things. A spade is a spade, and he tells us the truth – even if it hurts! I’ve been saving in my RRSP since I was 17 (believe me – long enough!!) and I have seen many ups and downs in my portfolio. However, I know that things are never easy, and I keep up with it even though it may not be growing leaps and bounds. Follow your gut instincts and know the basics (at least). If it seems to good to be true, it usually is!!
August 27, 2009 at 1:24 pm
I apologize in advance for posting another off-topic post (since it appears this is the only way that comments/questions, when dropped quickly from the Recent Comments section can get answered) – I did post my question twice under Student Loans/Debt:
Is there any way to claim student lines of credit on income tax, like OSAP student loan interest? We opted for lines of credit for two of our kids because it was faster and less paperwork was involved, but it was never explained to us by the financial adviser that the interest deduction was NOT like student loans under government plans. I think we got screwed – lesson on doing your homework before signing on the dotted line, and so that you know what questions to ask.
August 27, 2009 at 2:05 pm
Mary: when you want help with questions from Gail, you don’t post them to the blog, you post your questions to http://www.gailvazoxlade.com/questions.htm
Otherwise, your question can disappear into the middle of comments on the blog.
Anyways, as for your question about student loans…
As a post-student, I can only claim the interest from a government issued student loan, not any other types of loan. Keep in mind that the interest rate is prime +2.5% for Canada student loans and prime +1% for Ontario student loans, so you could be getting a much better interest rate. The difference is that with government issued loans, interest doesn’t accumulate until the end of your study term. With a bank loan, you’ll be charged interest immediately.
Regardless, if the debt was a government issued student loan, your kids would have to pay it off, and your name wouldn’t be on the debt, so you wouldn’t be able to claim it on your taxes anyways.
One thing that could be beneficial is that your kids can sign over their tuition credits to you, if you decide on that. It isn’t the same as the interest, but it is something. This has to be done each year that your kids are in school, if that’s occurring.
Personally, my parents paid for nothing and I got loans, so I kept my tuition credits. I also did the paperwork required for the OSAP – that should really be something that your kids are responsible for applying to; they can do it online and take your tax paperwork and do it all themselves. That’s what my brothers and I did if we wanted to get our loans, and though it may seem daunting, it really doesn’t take that long. When I was applying, it would take about 30 minutes for the paperwork to be completed, and after submitting, you get a rough idea of the amount you’ll be receiving. Then you just wait (or obsessively check for updates to your status!).
I hope that helps!
August 27, 2009 at 7:40 pm
I love the percentages as described and prescribed by Gail’s budget plan. If only we had had these guide lines when we were starting out. They are just guidelines so you can move things around according to your circumstances. But it is a good idea to stick as close to the percentages as you can so that you don’t short change yourself in some areas. Simply by sticking to slicing the pie up into 100% of your net income you will never debt yourself up to 120%. It makes it pretty easy to decide if you can afford that car or have to keep looking. If you can’t fit your transportation costs into the 15% you have to either cut back or change the way you travel or earn more or redistribute your budget. Ditto for housing. One thing we learned on our way to being debt free was that if you are serious about living debt free and within your means nothing is a sacred cow. You may love the house you are in and have planned on only leaving it feet first but you may have to adjust those plans. Your husband may cry when he has to trade his truck for an energy efficient car but he will recover. Eventually.
August 27, 2009 at 9:05 pm
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June 3, 2010 at 10:01 am
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