What Is a High-Yield Investment Program?

John Lister
John Lister
Man with hands on his hips
Man with hands on his hips

“High-yield investment program” is a term that can be used both as a promotional phrase and as a criticism. From a promotional perspective, it can simply refer to an investment strategy that favors high risks in the hope of achieving high returns. More commonly, though, “high-yield investment program” is a negative way of describing investment schemes that are at best poorly designed and unsustainable, and at worst fraudulent.

Theoretically, a high-yield investment program could simply be a set of investments made with the strategy of chasing high growth, for example through volatile stocks or through bonds that pay a high interest rate but are judged vulnerable to default. This type of investment invariably carries a higher risk. Such a strategy would therefore require not only a lot of money to invest, allowing more opportunities to pick a successful investment while absorbing losses, but also a willingness to accept losses if they happen.

In practice, it is unwise for financial advisers, fund managers and other financial service retailers to use the expression “high-yield investment program.” This is because the term is so strongly associated with scams that it carries negative connotations all by itself. Those who attempt to reclaim the term for use in a legitimate context are likely facing a losing battle.

The negative use of high-yield investment programs covers a wide range of scams, most of which are variants on the Ponzi scheme. Such schemes claim to invest the money of customers and guarantee a high return. In reality, what return is paid comes not from from investments, but rather from money collected from new investors to pay existing investors — with the scheme operators of course taking a cut of the money. As with any pyramid scheme, this has an inherent limitation. At some point, new recruits dry up, meaning the scheme collapses, leaving existing investors out of pocket.

Generally the name “high-yield investment program” is used for schemes that claim to provide a return that is dramatically higher than that offered even by successful operators of legitimate investments. The quoted figures are therefore both figuratively and literally too good to be true. Not all Ponzi or pyramid schemes are classed as high-yield investment programs, as some offer returns that are at least plausible, even if the supposed guarantee of a return level is inherently bogus.

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