Confidence
OK, so you are 24. You know investing exists... you know you "ought to" do it, i.e. it beats the 1% the bank pays. But you don't know a darn thing about it or how to do it. What you do "know" is that investing is an extremely complex and byzantine world... with lots of dangers. You don't feel confident to try it on your own.
You and most people!
Well, along come these people. They are all about confidence. And they give you the confidence to finally roll up your sleeves and start into investing.
And your friend is all about confidence, "look at me, I put my money into it (and I'm nervous as heck), you should help prop up my confidence by investing your money too!" And the others in the program are doing everything they can to prop up both of your confidence, and there's an awful lot of talk. Oh my!
In fact, pretty much the whole game is about confidence. It's a confidence game. Also called a con game.
They've really got you in a spot. If you say "Hey friend, I think this is a bad investment/scam", you're going to hurt your friend's feelings. And that's not something you do to a friend, right? And if you fail to invest, you're kind of saying the same thing.
And yeah, this kind of thing does hurt people's feelings enough to end friendships. It's almost like you're in a bind: lose your money or lose your friend.
Insidious, isn't it?
Run screaming. It's all a lie. Real investing is simple.
I wouldn't say it's "easy to learn", but following Suze Orman or Dave Ramsey, plus reading John Bogle's book Common Sense on Mutual Funds will get you through a lot of it.
The short, short version is you're blending several things:
- Cash in bank
- Bonds
- Domestic stocks bought in index funds (see Bogle)
- Foreign stocks bought in index funds.
How much of which depends on your investing goals. For instance a retirement fund is all about growth, which comes with volatility (risk of sharp upward/downward moves) but you don't care becuase you're in it for the long term. The blending is all about balancing max growth vs risk of a sharp downturn.
And really that's it... that'll get you the investment growth most people are after.
You don't need clubs or confidence games to get there.
Speaking of that... when MLM meets investing
An MLM (Multi-Level Marketing) scheme is where you have to sign up people for your "downline". Whenever you pull someone in, you get a sales commission as does the person who recruited you (and the person who recruited that person).
That chain can't go on forever. MLM schemes require an exponentially growing number of people to add to the downline. If the starter recruits 10 people, OK. They recruit 10 people each that's 100. They recruit 10 people each that's 1000... they need 10,000, they in turn need to recruit 100,000, then a million, 10 million, 100 million, a billion, 10 billion, etc.
So in the real world, MLMs peter out at about the 5th-8th level. They simply run out of suckers who are willing to overpay for something on the hopes of getting a sales commission from a downline they hope their friends will build. The only way to make money in an MLM is to be at/near the top. It's a zero sum game; the few at the top do quite well off the mass of hopefuls at the bottom, who are disappointed.
When an MLM happens in products, like Mary Kay or Amway, the damage is limited: the people at the bottom of the pyramid are stuck with a bunch of overpriced soap.
However, when an MLM happens in investing, we get a whole new monster. The core invested amount is not treated as "in trust" like a bank. The promise is usually that your money is invested in some sure-fire business that makes huge dividends and somehow Wall Street just missed this opportunity. (right.)
And the people at the top of the pyramid brag on their big returns.
But really, there is no business. It is a lie. The founder is simply giving your money to those at the top of the pyramid so they can brag about their huge returns.
This is called a "Ponzi Scheme", after Charles Ponzi who first worked the scheme. The scheme worked as long as they kept recruiting exponentially larger numbers of people, but when they ran out of suckers, the house of cards collapsed. And the people who lost were the ones in the bottom 2 or 3 tiers. Those who profited got prison.
And this game still happens - it tore through a civic organization I'm in, and cost a bunch of people their retirement.
Just like in other MLMs, the people at the bottom just get overpriced soap - but in your case you lose it all.
