Why Pyramid Schemes Don’t Work

First of all, for all pyramid schemes fans/believers out there, forgive me if you’re offended by this post. I’m just expressing what I feel and is based on my own limited research. If you’re still “investing” in pyramid schemes and will always be “investing” that way, then it’s your call. Your money, your own prerogative. I’m just writing here the reasons why I’m not interested in leaving my money in a pyramid scheme. Afterall, I am entitled to my opinion, no?

Basically what happens with a pyramid scheme is that you make one initial payment and you’ll get indefinite rewards. A pyramid scheme has a hierarchy. There will be people above you and people below you. When you join, the money you paid will be shared amongst people above you. When more people join below you, you’ll be getting a share of their money. This is their main source of income. I highly doubt that they actually invest in anything. Money will keep coming in as long as there are people joining.

As you all may suspect, pyramid schemes are unsustainable. Down below near the base of the pyramid, there will be so many people to the extent of, there will be nobody else to join. This is when the pyramid scheme collapses and the organisers scurry away with what’s left.

Have a look at the diagram below:

Pyramid Scheme Diagram

At level 10, that’s pretty much three times Malaysia population. Level 11, more than US population. Level 13, more than the World population.

Now, logically, how many people will actually join this thing? After people has stopped joining, it will collapse. Yes, you will make money if you’re at the top, but if you’re down below, I’m afraid you can say bye bye to your money. There will be more than 90% of the participants who will never recoup their initial investment. (Wikipedia.com)

To my fellow Malaysians, I think all of you know too well about the Skim Pak Man Telo that happened during the 1980s and 1990s. No need for me to explain about this further. Just be aware that pyramid schemes have become more sophisticated today with the availability of advanced technology.

Also refer to my previous post on “Get-Rich-Quick Schemes”.

P.S. I don’t consider pyramid schemes as “investments”. I consider it as “gambling”.

(Diagram courtesy of Wikipedia.com)

About nadlique

This blog is about the journey of a 28-year-old Malaysian towards financial freedom. This blog was started back when the blogger was 21 years old. However, his journey towards financial freedom had begun way before that. Materials such as investing, business, entrepreneurship, equities, and real estate are presented. The author also posts his thoughts and observations on life in general.

Comments

  1. angchoonseong says:

    hehee…i was with Amway. Does it count as pyramid ar? or just skim cepat kaya like uptrend, omegatrend etc only?

  2. Hi Ang,

    Amway is not a pyramid scheme but an MLM scheme (multi level marketing). MLM is similar to pyramid schemes. Just that it actually involves selling products whilst pyramid scheme is just simply finding people to join under you.

    So, did you make a lot of money through Amway? 😉

    Hehe.

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