Essay Example: Factors Affecting Choices of Investment

Published: 2023-05-22
Essay Example: Factors Affecting Choices of Investment
Type of paper:  Essay
Categories:  Risk Banking Money
Pages: 6
Wordcount: 1385 words
12 min read

Investors are exclusive players in the growth process of any business, and hence their level and value of participation can ultimately determine a company's failure or success. Various types of investors are angel investors, banks, venture capitalists, and personal investors (Bernstein, 2018).

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Peer-to-peer investors

Peer-to-peer investors are the kind of investors that offer to fund small business owners only (Bernstein, 2018). To get such funding, entrepreneurs ought to apply with companies that have specialized in peer-to-peer lending such as lending clubs, and await approval.

Angel Investors

Angel investors are people with an earned income that exceeds $200000 or has a net worth of more than $1 million and are found across all industries where they can be helpful to entrepreneurs who are beyond the seed stages of financing but not ready to look for venture capital (Bernstein, 2018).

Venture Capitalists

Venture capitalists are individuals or institutions that are used to finance business once it begins to show a significant amount of revenue. Venture capitalist invests a considerable amount and gets their returns through the percentage received as a recompense from the profits or carried interest (Bernstein, 2018).

Personal Investors

These investors are composed of family members, close acquittances, and friends. Sometimes these parties are involved, especially during the startup of a company, but documentation is highly recommended (Bernstein, 2018).

Kinds of Investment

According to the interactive investor profile questionnaire, I would consider several kinds of investments such as safe bonds, Assets such as Gold, high-yield saving accounts, and money market funds

By investing in government bonds, I will be assured that the investment is very safe and risk-free. These bonds are safe because Government bonds' value tends to move in line with equity values and, therefore, can reduce volatility in investment significantly. Choosing assets such as Gold because of their value. Despite the fact that its prices increase in response to events that cause the value of paper investments such as stocks which is very risky, Gold has always preserved history of maintaining its value over a long period of time. Correspondingly, Gold was worth considering since its attractive to many investors because of its liquidity such that it is easy to buy and sell it. Additionally, investing in money market funds would guarantee me with cash, higher returns, and also safety, which is the most important attribute.

Recognizing Fraud

A pyramid scheme is a sketchy and inappropriate business model where a few most senior members recruit newer members who pay upfront costs up the chain to those who signed them up while the newer members in turn recruit others and a portion of the subsequent fees they receive is kicked up the chain (Wells, 2000). I have never been in this pyramid scheme and never been a victim of one in my efforts to invest.

It is very hard to realize a pyramid scheme at a glance because the self-proclaimed products and service they offer sound a good deal. Additionally, the fact that to join these pyramid schemes, one does not to spend a lot of money up front makes it a viable scheme, which is not the case. It is worth noting that most pyramid schemes pose as multilevel marketing which makes It hard to identify them early enough (O'Connell, 2018).

Nevertheless, there are possible tip-offs to help people avoid falling victims of these schemes. Investors willing to try such investments and not sure if they are pyramid schemes or not should not shy from asking as many questions as possible (O'Connell, 2018). They should also research the company's track record, the products they sell, reviews. Another tipoff that is very important is that if you are offered any opportunities to join marketing groups where h emphasis is on recruiting to earn and not selling a product or service to earn, then that is a pyramid scheme (O'Connell, 2018).

How a Pyramid Scheme Works

This type of investment is named as a pyramid scheme. it resembles a pyramid structure that starts with a single point at the top that progressively tends to become bigger a sit goes to the bottom. This scheme seems to start innocently enough.

Step one starts with the originator, which involves an individual or small group at the top of the pyramid scheme putting a small amount of money or no money at all for the get-rich-faster opportunity and then charges the joining new members (O'Connell, 2018).

Step two involves suckers were down the pyramid scheme newer investors plow money into pyramid scheme, hence providing the cash needed to pay the earlier investors (O'Connell, 2018). At this stage things look very successful, although no single product or service has been sold at this point.

The last step is when the pyramid scheme collapse. It happens when it gets very hard to recruit new members meaning money becomes less to pay the investors who are already involved with the pyramid scheme (O'Connell, 2018). At this point the initial investors cash out and no cash left to pay the new investors. When the same investors try to cash in too, they realize that there is no cash left to pay them, and the pyramid collapses.

Famous Scandals

Madoff Scandal

Madoff investment Scandal was the main case of stock and securities fraud by Mark Madoff. The whistleblower of the Madoff scandal was Harry Markopolos. He smelt a rat when about the Madoff scheme after his boss requested him to come up with a product that could bring returns eas those of Madoff. He later realized that it was vague and mathematically unachievable ( Bandler, & Vancouver, 2009).

The victims of the Madoff Ponzi scheme were Austria's bank medici, New York University, Credit Suisse, Mass state pension fund, Lawrence Velvet, dean of Mass school of law, Fairfield Greenwich media and Fortis Bank in the Netherlands ("Victims of Madoff Support group," 2009). Additionally, Yeshiva University, Tufts University, US senator Frank Lautenberg's charity, Rosenman Family hLLC were also victims of the Madoff Ponzi scheme, among others ("Victims of Madoff Support group," 2009).

Madoff was very successful in swindling billions of money from investors by setting his portfolios to look like he was matching the returns of S&P 500 (Scannel, 2009). By adopting this strategy, it prevented him from paying too much to existing investors and made his holdings appeal to new targets. Madoff also ensured to keep his scheme very low key and kept his investors close. Nevertheless, he ensured to keep all his paperwork consistent and up to date.

Investor bias played a big role in making the Madoff scheme successful. This was possible through referral of new and more investors in the scheme. Some Madoff scheme investors were Madoff's close relatives, including his sons and the wives whose pockets did not match. Bias regulators also contributed to the success of the Madoff scheme despite a lot of suspicions and red flags. This was due to the fragmented oversight and lack of coordination between agencies (Moyer, 2009).

Even after being caught, the Madoff defended himself and claimed that he was a good person and what people claimed him to be. He further insisted that others were greedy and not innocent so, he went along, and therefore, no one left empty-handed (Scannel, 2009). He confirmed to have made a lot of money for people despite things having gone south. He felt that the, market exploits individual investors, thus leaving them no chance in the market.


Investment is worth every try and risk. However, every investor should ensure to do a background check on a potential investment to avoid being duped and falling for a pyramid scheme or fraud like that of Madoff, which duped even elites and institutions.


Bandler, J & Varchaver, N. (2009). How Bernie Madoff Did it. Retrieved from

Bernstein, R. (2018). 5 Types of Investors for Startups. Startup Nation. Retrieved from

Moyer, L. (2009). How Regulators Missed Madoff. Forbes. Retrieved from

O'Connell, B. (2018). What is a Pyramid Scheme. How do They Work? Retrieved from

Wells, J.T. (2000). So that is Why it is Called a Pyramid Scheme. Journal of Accountancy 190(4),91

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