Really, Are Low Interest Investments Safer? Why People Fear HYIP

Are low interest investments safer? If I promise you an ROI of 5% per annum, would you feel better and give me all your money? Would you be certain that your investment would not go down the drain? Let’s find out.

To an investor, a return on investment (ROI) is the additional amount of money expected to grow upon an investment within a period. It is what an investor gains from investing. For most investments in the stock market, ROI is usually calculated annually. However, a few investment companies offer ROI on a monthly basis.

When you invest your money in an asset, the ROI shows you how much profit your investment will earn. So it can also simply be said to be the rate usually measured in percentage to which an investment has grown. We already know that investments are a major vehicle for wealth generation. In fact, the top 1% on the world’s wealth ladder are all investors. The main goal when making an investment is to get back an interest on your investment also known as ROI.

Ponzi: Why People Fear HYIP

MMM was a Russian-founded Ponzi scheme that found its way into Nigeria in 2017. It found a home within those languishing in poverty and leveraged on their need to earn money fast. MMM wrecked the lives of so many people as it promised up to 30% ROI 30 days. The entrance of MMM and many other scams enforces a general belief that high yield investment programs are risky and are more likely to crash.

Are low interest investments safer? Let’s ask Mavrodi

The basis of this kind of thinking is simple; the more money you promise, the higher the chance that you are unable to pay. This is intuitive, but it may not be necessarily factual.

High or low ROI should depend on the amount of return that a venture is able to generate. Thus what is promised should depend on the type of company offering the investment opportunity. Companies that operate foreign exchange may not consider a payout of 50% as low. This is because because they can earn as much as 550% bi-annually. But with such huge profit margins, come a possibility for huge losses. This volatility is a major reason why it is therefore unsafe.

How Does This Apply?

Another example was the onion boom of 2020. Onion traders were able to promise up to 50% ROI to investors in 2 weeks and they would not be lying. But the question now becomes, for how long will this boom last. Would it not be safer to set a lower ROI and pay investors from the stored profits when things go sour? What would happen if Onions stopped selling?

Now the main concern becomes “what is your risk in this investment hedged against?”. In any case, you want some form of assurance that if everything goes bad, you can still recover your money. With this in mind, the conversations quickly moves from “high yield vs low yield” to “high risk protection vs low risk protection”. A person can lose his money even with a low interest investment. In principle, this makes it as risky as a HYIP.

What Exactly Is An Acceptable Interest Rate?

However, according to Forbes, an annual ROI of approximately 7% or greater is considered “good” for an investment in stocks. Investments lower than 10% is considered “good” by many investors. But the idea of safety is entirely unpredictable because salient questions need to be asked before reaching that conclusion.

Does this ROI go below or above the inflation rate?

Does the ROI reflect the honest reality of the business model.

At the end of the day, what an investor wants from an investment offer is predictability and sustainability. Experienced investors build wealth for themselves over time.

If you decide to focus on low interest investments, you will most likely lose value on your money over time because of inflation. Because of this many non institutional investors go for short-term investments with tenures ranging from 6 months to 1 year.

At the other end, having a high-risk investment that yields an interest rate of about 60%, means that investors can put in their money and fold their hands while expecting the worst. However, when it comes to high interest investments, the safety is largely on the business model. A large percentage of investment platforms that offer an exuberant ROI’s come off as Ponzi schemes.

And they are able to give out huge ROI due to the model which offer double the amount of capital invested as profit from another investors original principal. Some other platforms that offer high ROI over exaggerate their profit projections, causing them to crash due to the inability to break even. when this happens, investors loose not just their interest but also a large amount of their principal or in worst case scenarios, all of it.

How Are Interest Rates Determined?

You can determine interest rates how high or low an ROI is by looking at the state of the economy and by the profitability of the business. Various niches have acceptable interest rates for investments. Decent interest rate are listed below;

  • Agriculture : 10 – 50%
  • Real estate : 8% – 30%
  • Savings Accounts: 0.50% – 2%
  • Cryptocurrency companies: 2.2% – 8%
  • Micro lending: 9% – 60%
  • Day trading Forex: 150%

In order not to be on the losing side as an investor, it is best you do a background check and find out how profitable the business is before injecting your funds. You can accomplish this by seeking the company”s audited financials.

Are Low Interest Investments Safer?

If you ask me right now “are low interest investments safer”, my simple answer is NO.

My not so simple answer is this:

One cannot truly ascertain that an investment is safe, simply because the interest rates are low. Having a safe investment depends on many factors. However we have seen from experience that scams are more likely to promise high yield. This is because it arouses greed in people who want more for less. What we can say is that responsible investments promise lower yields because they take into account many adverse external economic factors.

In other words, people did not lose their money in MMM because the interest was too high. On the contrary, they lost their money because of two things;

(a) There was actually no business model that could support such high interest at scale.

(b) There was no protection for the risk of investing.

Now go ye into the world and do what is reasonable. Meanwhile, you can look below to find some of our recent articles specially curated for you:


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