Too good to be true: How to avoid losing money to Ponzi schemes

I read a heartbreaking article this week, about a grandson investing a large sum of money for his grandmother in a Ponzi scheme.

Sadly, I have seen many of these schemes in my decades in the industry.

So why do people still fall for these scams?

Let me share the main reasons why, as well as 2 key things you can do to avoid a Ponzi scheme, so that you and your loved ones never experience this.

Before we dive in, it’s important to understand why people are attracted to these scams.

No doubt you’ve heard the saying, ‘If it’s too good to be true, then it probably is’. Never has a more accurate statement been said – when it comes to Ponzi schemes.

I believe the main reason people get caught in these investments is because they have no way of measuring what is too good to be true. How much is too much? With every Ponzi scheme, the story is the same in that we’re told we can make very good returns. But what they really hear is that they’ll make a lot of money in no time with very little effort, which we know sounds too good to be true.

What happens next is that the person getting scammed makes no effort to stress test the investment through proper research or due diligence. Instead, they focus on how much they’ll make and ignore the risks. This is usually because they are asked to participate by people they trust, which could be the person running the Ponzi scheme or a friend or family member who has already invested.

As a consequence, they drop their guard because they’re told they need to be quick, so they don’t ‘miss out’. If you aren’t willing to do the research to pick apart the opportunity presented, or you have FOMO, then, unfortunately, you might be the type of person who could fall for a Ponzi scheme. So, what are the two ways to avoid them?

  • Firstly, and most importantly, check that the business is registered with the Australian Securities and Investments Commission (ASIC). You should also request the company’s Australian Business Number (ABN) or Australian Company Number (ACN) for further verification. You also need to verify their claims independently and question unusually high returns.
  • Secondly, seek out an independent expert like an accountant or financial planner and let them look at the opportunity. If they smell something fishy, do not invest. You need to pay attention to the warning signs that it’s too good to be true. If you suspect fraudulent activity or believe you have fallen victim to a Ponzi scheme, then report it to ASIC or the Australian Competition and Consumer watchdog.

Best & worst-performing sectors this week

The best-performing sectors include Materials, which has been up over 3 per cent, followed by Energy, which gained more than 2 per cent, and Financials, over one per cent. The worst-performing sectors include Healthcare which dropped nearly a per cent, followed by Consumer Staples and Utilities.

The best-performing stocks in the ASX top 100 include Bellevue Gold (ASX:BGD), which gained over 18 per cent, followed by Ampol Limited (ASX:ALD) and A2 Milk (ASX:A2M), which have both added more than 6 per cent. The worst-performing stocks include Medibank Private (ASX:MPL) and NIB Holdings (ASX:NHF), which are down just under 4 per cent, followed by Lendlease Group (ASX:LLC) which is down just over 3 per cent.

What’s next for the Australian stock market?

This week the All-Ordinaries index is up over 1 per cent with the buyers stepping in at the 7,900 level to take the index higher.

Remember, last week, I mentioned that 7,900 was a potential reversal point, and, while the buyers have agreed so far, I would like to see a continued push upward to break above the all-time high of last week.

If this occurs, I could confirm the All-Ordinaries index had formed the short-term low I’ve been anticipating, and that I believe the market will continue rising up to the 8,200 to 8,400 point range in the near term.

I have also spoken about setting up for the next opportunity to buy following the short-term pullback, so this week let’s look at some sectors that held up well and are set to benefit from the next move up on our market.

The Materials and Energy sectors have stood out, posting some of their biggest weekly gains last week. Bear in mind that the market also recorded its biggest one-week fall for 2024 last week.

Right now, it’s clear that money has been flowing into these two sectors while the market was falling, which tells me that if you are looking for good value, these are the sectors to focus on.

Some notable names in the Materials and Energy sectors that have the potential to do well in the next month or so include Woodside Energy Group (ASX:WDS), Santos (ASX:STO), Rio Tinto (ASX:RIO),BHP Group (ASX:BHP) and Fortescue Metals (ASX:FMG).

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at

While Wealth Within holds an Australian Financial Services License (AFSL:226347) the information featured in this program is general in nature and therefore should not be relied upon. Before making any investment decisions, you should consult a licensed professional who can advise whether your investment decisions are appropriate for you.

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