One of the basic rules of investing is that the higher the risk, the more potential for gain. A high yield investment program (or HYIP) is one such program. By investing a small amount, a HYIP offers the possibility of high gain, with some risk.
One of the biggest problems with HYIPs is that they can represent a lot of money placed at risk for a high potential gain. Although they can involve small amounts of money, most investors will invest as much as they figure that they can risk, in order to take advantage of the high potential return. Read: Although they don’t require the huge start-up that other investments do, people do spend as much as they can afford. (Some put in more than they can afford, but this is never recommended.)
Also, some HYIPs are just well disguised ponzi schemes, and are thus highly illegal. (Investigate any investment opportunity, with special care as to the background of the group or person presenting it. Normally, too good to be true would be good advice, but that doesn’t always prove true when it comes to investing.) Some HYIPs are in fact defined as ponzi games in order to skirt legislation that prohibits ponzi schemes as well as uninsured investments; bear that in mind when investigating any HYIP.
Not all investments pay off
However, the problem is that not all investments pay off. With HYIPs, that’s actually the nature of the investment; although they all promise high gain, the problem is that high risk does mean a strong chance of losing any funds involved. Thus, any potential investor is advised to not invest any more than he can afford to lose.
When debating the effectiveness of a HYIP, be advised that that the nature of the investment itself makes gauging that difficult, and that only the investor himself can make that decision. What makes them effective is that they can create a nice profit for the price entailed, but the risk involved makes arguably effective. There is no real way to cushion the investment, as there would be for most investments; again, the nature of the HYIP denies that.
However, HYIP’s can be effective if the investor limits his activity to just one or two HYIPs at a time, and invests conservatively otherwise for the time that he is involved in the HYIPs. That way, the investor has the other investments to fall back on in case the HYIP falls through. This strategy makes the investment more effective, and decreases the risks involved, making them more attractive, and more effective.
HYIPs can thus be very effective investments, especially if the person can afford to lose any funds invested. If the investor is investing assuming that they will get the money back, and with a high yield, and doesn’t allow for the possibility of loss, however, a HYIP can be a potential issue. Investing in general isn’t for the weak; that definitely applies to HYIPs.