Don’t fall for the WhatsApp stokvel and other pyramid schemes

The dream of having an extra R1 000 in your pocket which took

you zero effort to make is tempting, particularly in an economic climate where the

cost of living is high.

Thinking about the price of food, fuel, electricity and daily

living expenses is enough to make anyone fall prey to a pyramid scheme. 

There have been many in South Africa and most recently the

“WhatsApp stokvel” that’s doing the rounds.

If you haven’t yet been invited to join it, you’re lucky!  A message has been circulating on the app

encouraging people to invest anything from R50 to R200 to get an investment of

up to R1000 if they keep recruiting new members to the group.

But as with all pyramid schemes, it’s only the early bird members

of the group who profit, while everyone else is left behind.

Speaking to Business Insider, Andrew Lukhelethe, founder of Nasasa

Stokvel Association said that administrators of the group disappear with no

further word of the money and it’s difficult to track where the money has gone

because it involves anonymous people.

Earlier this year the R5 investment scheme raised suspicion after gold and metal dealers Apmex offered a R25 000 pay off in 32 days for an old or new R5 coin. Apmex is a reputable dealer based in America. Heartlines can confirm that a bogus office which was set up earlier this year has since been closed.

Our Values & Money team is encouraging South Africans to beware of pyramid schemes. Here are three tips from Financial Advisor, Gerald Mwandiambira, on how to spot a swindle.

1. Abnormally high returns
   Schemes that offer especially high returns and use terms such as “guaranteed return” should be treated with scepticism. While the concept of higher risk for higher returns is fundamentally understood by a large percentage of the public, they can’t discern when the returns are “abnormally high”. South African investors can expect around 7.0% a year in cash (low risk) or 15% a year in the stock market (high risk) over five years. Any opportunity that promises a return that is higher than what the country’s top asset managers can generate is implausible.
2. Under pressure
   It is a common tactic of fraudsters to place inordinate pressure on participants to invest. Whether you are being pressured to make an initial investment or encouraged to increase your investment, they want to coerce your decision. Take your time considering investments.
3. Recruiting Participants Any investment that requires you to recruit more participants in order to generate a return should be a clear warning sign. This is a classic characteristic of both Pyramid and Ponzi schemes. Eventually there won’t be any new participants and the entire system will collapse.The best protection when making an investment is to engage with a licensed financial adviser, as they are subject to rules and regulations put in place specifically to protect consumers. Remember that no return is ever “guaranteed” in the world of investments and that even the most modest of investments carry some risk.

Watch this Nedbank - produced movie that reflects exactly this problem