Jul 3, 2007

Should I Invest In HYIPs?

This article is part of a Finance series (here) I started a while ago. Although it's not sequential with the rest, it has become necessary that I share some things about this subject. Within the past few months I've received dozens of phone calls, some from friends I haven't heard from in a long while and one from someone I have never even met asking for my advice and opinion. Lots of people seem to think I'm an authority in this regard. I'll not confirm that notion, but I'll not deny it either. Hope you gain some things as you read, and you'll invest wiser and safer.
Today, the average Nigerian has become investment savvy. He is no longer satisfied with keeping his money in the banks, and he has realized the futility of sticking to a monthly salary. A number have gone ahead to train themselves in operating such investment vehicles as Stocks, Mutual Funds, Real Estate and Foreign Exchange. Everybody wants to learn how to invest, and everybody wants to invest. So some professional money managers took advantage of the situation, and created several investment programs, collecting money from investors and paying them returns on their investment. Very soon, lots of these investment programs sprung up, both genuine and non-genuine, and as always, it is difficult to distinguish the genuine ones from the non-genuine. Some of these programs have been around for years, some are months old and some are still in the initiation process. They are commonly known as HYIPs (High Yield Investment Programs), and their history goes a long way.

Today, a typical HYIP will promise you high returns on your investments with them - much higher than you'll get if you save in a bank. They all claim to invest your money in a number of things ranging from Oil and Gas, Foreign Exchange, Gold, Precious Metals and Stocks. They have no publicly available "Balance Sheet" or "Earnings Report" and so no one knows exactly how true their claim is. The important thing to most people is that they deliver the returns promised, at least to a large extent, and so everyone is happy.

The HYIPs on ground presently can be categorised into three. Those who promise monthly returns on investment eg. Nospetco, WealthZone, UpHenry, etc; those who promise a one time payment after several operational weeks Eg, Treasure Line, Wealth Solution, etc; and those who promise increasing returns every operational week for a particular number of operational weeks. Eg Pennywise, Cash Seed, etc. Operational weeks vary from 10 working days to 20 and some might even last longer, and pay-off varies by percentage. I won't go into the nitty-gritty of the operations of these HYIPs. A few bloggers have already written extensive posts and you can easily get any information you need. If however you need more information, you can contact me directly and I'll point you in some right directions.

I was prompted to write this article by an event which happened some time ago. The EFCC had sent out a notice to all banks which are used by HYIPs to put a stop order on their accounts, while they carried out investigations into the operations of these HYIPs. Many people all over the country were nervous and hearts were in mouths for a few days. A friend of mine could not eat well because he had borrowed most of the money he invested into these HYIPs. My phone rang dozens of times with people asking, "How Far?, has EFCC cleared .... (and they would mention the name of one of the HYIPs)?". Fortunately, the accounts were reverted back to status quo within a few days and many people could breathe freely again. But the damage had been done. People began to doubt. A lot of my friends who were affected swore never again to invest in these HYIPs to save themselves the agony and anguish they had to go through. I have therefore put together "The Rules of HYIP Investment". If you must invest in HYIPs, follow these rules and your risk will be reduced to a minimum.
  1. Never invest more than you can afford to lose.
    Whatever you choose to invest, consider what will happen if you lose it. If losing it will make you catch hypertension or something similar, then reduce it to something you won't miss if you lose out. This is the most important rule.
  2. Get in (and out) early.
    For the HYIPs which promise the highest of returns, the longer the HYIP has been around, the greater the probability that they'll soon go down. Don't waste time making your decisions and waiting to see if people are actually receiving returns. If you're going in, go in early, collect your proceeds and get out quickly.
  3. Diversify.
    Spread your investments over various HYIPs. That way, if one goes down and one performs, the returns easily cover your losses. Don't put all your money into one HYIP no matter how attractive it seems. Think of what might happen if the HYIP suddenly goes down.
  4. Secure your returns.
    Don't reinvest your returns into the same HYIP. Transfer your returns immediately into more stable investments like Stocks, Mutual Funds and Real Estate. That way you're covered if something happens collectively to all the HYIPs.
Also note: The higher the returns, the higher the risk. The shorter the investment term, the higher the risk. So, if you're diversifying, balance your investment across both risky and less risky HYIPs. Don't diversify by spreading all your money across the very risky HYIPs.

I do not guarantee that you won't lose. Investing in HYIPs will always be risky. There is no way to fully eliminate the risk. No matter how stable a HYIP seems, there is still an element of risk. If you are averse to taking risks, then these HYIPs are not for you. Invest in safer and more secure investments which will allow you to sleep at night, and whatever happens don't let sentiments determine your investments. Better to be safe than sorry. However, if you're the risk taking type, with some money that you won't miss if you lose, then by all means you can go ahead and invest. You might be lucky, many have been.

Wishing you luck in your continued quest for Financial Freedom.


Aziza Uko said...

Tayo, this is very enlightening. My concern with many of these HYIP is that they are Umana Umana rebranded. I prefer to be safe with shares or real estates. Because of you, I could consider a HYIP. Get in touch, you know how.

dupe said...

I wouldn't invest in any HYIP's that does not have standard business fundamentals and would not advise anyone to do so. It's just like gambling and it is better not to gamble. I think that investments should only be done through company's that have good fundamentals. Who are they? What experience and track record do the promoter's have? Are their financial statements audited? As an investor you have a right to ask for their financial statements and scrutinise before you take your decisions. What do they do with your money? Do they have projections that are reasonable and realisable.

Take a cue from banks; they only approach you for investments in your public offer once they have a well reasearched and detailed prospectus.

The summary is that whatever you want to invest, is your hard earned money and there is no reason why you should allow anyone to cheat you out of it. No one builds a house without a proper foundation. You have a right to check the foundation before you decide to build on a HYIP.

A final point is that there are too many reasonable and viable investment options today for anyone to loose money in a HYIP

Omodudu said...

A discussion long overdue, promptly linked. I have a few emails like that too, unfourtunately i am not in a postiont to talk about I have very little information. You really need to make an expanded post o. You do not know how many people are worried. Woried for being in this funds and worried for not being in these funds.
Some of them are just outright pyramid schemes, I know why you may not want to say that though.

Omodudu said...

linked to this post, thanks http://altnigeria.com/?p=114

divali said...

I wonder if most of these HYIPs are SEC registered?
Ultimately, it makes more sense to go with IBTC /Discovery fund, since the the Investment and Securities Act spells out all the minimum threshholds the companies must hold and verifies any propectus bein.g distributed to the public
My brother,a dentist, made crazy returns after investing in Nospeco but decided to pull out 'cos the returns were just too good to be true...i agree with the points you made about deciding to go with one of those,N1m is easier to let go than investin N3,4,5M...People might have more confidence if the HYIPs where regulated or if their books could be inspected

onydchic said...

I've actually been considering it I admit. I work in a bank, and am quite surrounded by people that are doing it.I think I'll just wait till it works for someone else. We all have the impresion they'll up and leave eventually but for now, they're confident. And the investments arent enough to really miss, for instance my friend invested just 3k, unless ur greedy.

Tayo said...

@all, Insightful comments so far. I agree with what Dupe said about investing in only credible companies, but Nigerians are moved a lot by success stories. When someone who has invested in Nospetco for 4 years tells about how he has reaped much more than he invested, people are tempted. The same goes for the other schemes. I agree with @Omodudu. Many of these HYIPs are really camouflaged pyramid schemes who just recycle investors funds. Some are however involved in genuine businesses and they pay investors from their returns.
I think if these HYIPs can be regulated, then the grain will be separated from the chaff and Nigerians will know which ones are genuine and which ones are not. Divali and Dupe's comments make sense here.

Tayo said...

@aziza, a number of these HYIPs will collapse like Umana Umana, it's just a matter of time. One I know is already on the brink of collapse.
@onydchic, I'll say if it's one of the highly risky ones i.e. those that pay you 300% and above after several operational weeks, the earlier you go in the better. However, right now, it might be too late. I'll advice you to hold your money for now and look for more stable opportunities.

ababoypart2 said...

Tayo, excellent analysis. I am still a student of Nigerian investment opportunities and the hype that surrounds it. This post will help me a great deal.

AaaDee !! said...

Hi Tayo, its s difficult post for me :)

Just a click, how abt investing in Property/Lands in Nigeria !!

truth said...

Investment Pratice is definitely not fot the faint-hearted. Most 'quick returns' investors don't realize when you reach the peak in your gains (and the HYIP market is as bullish as it could get that period) the only road to follow is the one you just walked through to get to the top: aka the plunge to the base of minimal returns.

It's a game of trade-off because while you are bitting your fingers off from a loss, some dude/dudette somewhere is hitting a home run in the market.Lol.

Tayo how are you? Good post here.Gosh am I glad that Blogville Idol thing is over. I was starting to think it was taking your time away from keeping us posted.

truth said...

Just read the other comments...
@Dupe: you can't rely on company track records to ensure the safety of your investments. Generally, market inefficiencies have defiled most theories that present market successes or failures are adequately tied to past track records. It's all about BETS (putting those sofisticatedly coined finance terms aside) be it shares, mutuals etc. The question is what are current portfolio selection tricks and when's the right time to dash in?

Tayo said...

@Aaadee, Properties and Lands are one of the most profitable investments in Nigeria. The problem most people have is Start-up capital which is quite high if you're looking at significant trading. Properties mostly never depreciate. They appreciate almost as soon as you buy them. That's where I hope to get to finally ... hopefully :)

Tayo said...

@truth, LOL I like your point of view. Someone's loss is someone else's gain. I'm very fine, thanks for asking. I've been quite busy these past few weeks, one thing's been leading to another. I'll update more from now, promise!

Tayo said...

@truth, about your reply to Dupe ... Could you please expantiate more on the "market ineffeciencies"? I think if you do the proper analysis using appropriate ratios you might be able to predict direction.

truth said...

Hey Tayo...Little error on my part. The word should be Market EFFICIENCIES not inefficiencies.

...now let's use stocks for e.g.
If all investors were irrational then their investing behavior will lead to market efficiency. On the other hand, if investors are highly risk averse and cautious(rational) then stock prices would be predictable leading to market inefficiencies(the opposite case).
In reality we know stock prices and investors behavior are actually unpredictable because price levels only move in response to new unpredicted information as old info is already part of today's information. The ever-fluctuating securities market quickly regards today's information as past information.

Now efficient market hypothesis(EMH) holds no regard for technical analysis that rational investors typically dabble into (pardon my 'LOL' at them here). This is because the effect of all publicly available information of these securties, whether price history or trading volume, have already been reflected since past investors competed to exploit those common, publicly available knowledge( which if I must add has minimum value).

As an investor what you should investigate is the relevant undiscovered information on which you can trade these securities before the rest of the market lay their hands on that info. Tough job ehy? It's a game for the savvy....like me.Lol.
You can't speak those precious hours flipping pages of company reports and expect to hit a jackpot all the time (aka the prize for your well done research). No matter what you do the securties market is a fast-changing one. Your upperhand is determined by your timing and savvy reaction to new market information.

Hope this answers your question Tayo. Ciao.

akin said...

Good luck with that, but be wary. At the same time, No pain no gain!

Anonymous said...

this would be something to think of in the future... great stuff T

Tayo said...

@truth, that was quite exhaustive. Please send me a mail ... let's discuss further.
@akin, yes oh. No pain, no gain
@Overwhelmed, Thanks a lot. Pls confirm when you're ready to invest o.

Dupe said...

One of the wonderbanks that offered 100% return within a few weeks has closed it's 3 offices in Lagos. Depositors are at a loss on what to do.

Central bank put a notice in the papers today asking people to restrict their activities to Legal finance houses.

The heartache is just not worth it

Tayo said...

@Dupe, lol, You're obviously talking about Treasureline. Friends of mine are currently at a loss due to Treasureline's actions. They slashed their pay-off once and rumour has it they're going to slash it again. However, the early birds have made their money and flown away. The late birds are left to bear the brunt. My take on this is to get in early and run. The longer you wait, the higher the probability of losing out. For most of them, it's already too late to get in. I can only recommend 1 or 2 that I know will stand any test.

Anonymous said...

Good info,keep this up,we naijas need good finacial knowledge.We need to understand that the HYIP is a global case(though most are scam really)and the Nigeria wonderbanks(as u guys call it)are mostly investing in the global market,they are not rocket science or impossibles.Though my wife have good amount in all the niajas which we are yet to get ROI,from my LITTLE investigation,its only due to the NAIJA FACTOR(ensuring good standard),this will cause panic and reduce pple trust in investment.
I know a little cos am priviledge to do same investment in the UK,to be honest what all naija wonderbanks are giving is a SMALL fraction of what the real thing is,example if they do a 300%,bet me on it its actually abt 750%.
Like u guys rightly said,we dont know when all this will last for but am a bit secured that its not so soon.
However,even in places like UK we still experience loads of scammers,JUST BE CAREFUL.
I will keep in touch,cheers. I dont mind ur contact,give me a private ID i will leave my contact too.