What is the difference between a Ponzi scheme and a legitimate investment?

A Ponzi scheme is an illegal and fraudulent form of investment commonly used by unscrupulous financial advisers. Generally, these schemes rely on the notion that investors can get a high return on their investment with little risk and without the necessity of understanding the underlying investment. In contrast, a legitimate investment is one that follows the necessary legal and financial regulations. Legitimate investments are subject to the oversight of state or federal regulatory agencies, and require investors to perform their own research and due diligence prior to making an investment. Legitimate investments may involve stocks, bonds, mutual funds, real estate, commodities and other investments, and the risks and rewards are clearly outlined before the investment is made. In Washington, state laws and regulations are in place to help protect citizens from investment fraud and Ponzi schemes. It is important to always research and understand an investment prior to entering into any kind of agreement. Additionally, if an investment opportunity appears too good to be true, it is important to contact the appropriate government agency to ensure that it is a legitimate investment.

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What is the difference between a Ponzi scheme and a legitimate investment?

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