According to the Investment Risk Tolerance Assessment, the types of investment that I should consider include shares, real estate, and bonds. After spending three years in business school, I started earning a growing and impressive salary. I am not married and have no children; however, I would like an early retirement so that I can travel the world. Currently, I have investments of about $85,000. Although they are growing, I have a long way to go in order to achieve my financial freedom. To increase my investment, I opt to start investing primarily in stocks at 82 percent and bonds at 18 percent in bonds. In the future, when I get closer to my financial objectives, I am going to increase my percentage of investment in bonds.
Different types of investors and their investment prowess are based on their motivations, capabilities, and resources. People tend to choose one investor over the other based on their capital needs, the size of the company, and strategy. The following are the different types of investors:
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Angel Investors – Angel investors are individuals looking to invest in startups or entrepreneurs (van Raaij, 2016) . Angel investors can either be family or friends. They invest because of financial, lifestyle, or altruistic reasons by bringing more money to the table.
Venture Capitalists – Venture capitalists are individuals who invest in startups and businesses that have proved to have long-term potential for growth. Venture capitalists include wealthy investors, hedge funds, investment banks, and any other financial organizations (van Raaij, 2016) . Venture capitalists come with deep pockets, and the more evidence a firm provides, the greater the chances of securing funding.
Corporate investors – A corporate investor is a business that is interested or chooses to invest in another company (van Raaij, 2016) . In most cases, the primary purpose of the investment can be to diversify their assets or to identify technology and talent that can give them a competitive advantage or take control of the business.
In the different types of investors, I fit in as an angel investor. Besides providing capital to start-ups, I would like to get involved in providing knowledge and mentorship in the early stages of the business because I am much more interested in seeing the business succeed rather than profit from my investment.
My research on investment behavior revealed that there is an association between strategy selection and investment performance. For example, when buying stocks, investors go for enterprises with higher stock shares and are likely to invest in short or long-term stocks with suitable capital allocations (van Raaij, 2016) . Thus, as an investor, my investment profile will change with time in the relation between risks and returns, which is critical in selecting credible investment targets.
My investment portfolio will assist me and my financial advisor in the planning of my portfolio by:
Knowing the duration of how long I want to invest. This can be for the short/medium/long term and the value of my investment growth (van Raaij, 2016) .
Determining the most suitable type of returns (van Raaij, 2016) .
Determining how fast I can turn my investment into cash before the lapse of the investment period (van Raaij, 2016) . And,
the risks involved (van Raaij, 2016) .
Part II: Recognizing Fraud
A pyramid scheme is a fraudulent investment money-making strategy based on a hierarchical setup of increasing the quantity of "investors (Feng et al., 2019) ." The initial organizers are tasked with recruiting new investors, who successively recruit more investors. The hierarchical system is referred to as a pyramid because there is an increment in the number of investors at each level (Feng et al., 2019) . As a result, the initial organizers of the scheme at the executive level require a large base of new investors to support the scheme by paying money to earlier investors to provide legitimacy to the scheme (Feng et al., 2019) . Pyramid schemes are also called "chain referral schemes" or "franchise fraud," where people are offered a franchise or the distribution of market specific products. However, profit is not made by the sale of the product but by the sale of new distributorship.
A multilevel marketing plan is a strategy employed by firms to encourage their existing distributors to recruit new ones by paying them based on a percentage of their actual sales (Wrenn & Waller, 2021) . This means that the distributors are selling the products or services to acquittances, friends, and family. Most multilevel marketing (MLM) enterprises claim that distributors make money by selling products and services to retail consumers who are not involved in the plan or through the enrollment of new distributors and earning commissions on what they acquire and their sales to consumers (Wrenn & Waller, 2021) . An MLM can be recognized, but its sheer number of members globally, but only a few of them are earning meaningful incomes from their efforts as distributors.
A classic example of a pyramid scheme was the Fortune Hi-Tech Marketing firm based in Kentucky that enlisted people to sell products made by Frontpoint Home Security, Dish Network, beauty products, and cellphone products (Feng et al., 2019) . In 2013, the company was designated ads a pyramid scheme when individuals made more money from recruiting than they did from selling. Herbalife Nutrition Limited is an example of a high-profile MLM that manufacturers and distributes nutritional and weight-loss products. It had been predicted that the company's stock would fall, and it did so in 2018. However, there are legitimate MLMs such as Tupperware, which is renowned worldwide. The firm was established in 1946 and sold plastic food containers. The company has an annual revenue of $1.7B. Legitimate MLMs firms sell high-quality products at competitive prices than competitors with traditional distribution channels. Based on this information, I am glad that I have never invested or participated in any illegal pyramid scheme or MLM.
Pyramid schemes are unsustainable because their success largely depends on the ability of initial organizers to recruit more investors. Because there is a limited number of investors in a particular area, pyramid schemes always collapse (Feng et al., 2019) . Also, only those at the top make money which makes other people lose interest in the scheme. Most targeted victims of pyramid schemes include most vulnerable households with an income of less than $300 annually in third-world countries, family, friends, and business associates of previously targeted victims, organizational affiliates linked with the scheme's propagator, and clients involved in legitimate business initiatives.
Part III: Famous Scandals
A Ponzi scheme is a deceitful venture initiative that use funds accumulated from new stockholders to reimburse earlier investors (Henriques, 2018). Often, the organizers of Ponzi schemes indicate that the money invested would produce high returns with little or no risk. However, Ponzi schemes have no legitimate earnings and require continuous cash flow to survive. When recruiting new investors becomes hard, or when existing investors cash, the scheme collapses.
The following signs can recognize a Ponzi scheme:
Consistent returns – this is when investments either increase or decrease with time (Henriques, 2018).
Unlicensed distributors – most schemes are characterized by unregistered firms and unlicensed individuals (Henriques, 2018).
Complex and secretive strategies – With most schemes, it is not easy to get information about them (Henriques, 2018).
Difficulties in receiving payments – Most schemes have difficulties in paying the investors or in cashing out (Henriques, 2018). At times, Ponzi schemes discourage participants from cashing out by offering them higher profits for staying.
Bernard Madoff orchestrated one of the largest investment frauds in American history, ripping off more than $65 billion from thousands of investors (CBS News, 2009). Harry Markopolos is the individual who discovered Madoff's $65B Ponzi scheme before it imploded in 2008. Markopolos worked for Rampart Investment Management based in Boston. His boss asked him to develop a similar product that would generate similar returns to the steady numbers produced by Madoff. Markopolos posited that Madoff would generate one to two percent returns monthly, in positive territories 96 percent of the time, generating a 45-degree profit curve without inconsistencies (CBS News, 2009). Next, Markopolos tried to reproduce Madoff's approach using S&P 500 shared hedged against risk using Chicago's derivative exchange without any success (Bernard & Boyle, 2009) . Finally, Markopolos resolved that it was not statistically possible to even out with all the uncertainties in the S&P index's performance. Most of Madoff's victims were Hollywood stars, charities, pensioners, and hedge funds. Identical characteristics in the victims who participated in the scheme are that they were wealthy and well acquainted with him.
After visiting the site developed for Madoff's victims, I found it interesting that they have been able to pay off more than $2.7 billion to 32,634 victims as of 2020. Also, what is slowing down the recovery process and distributions are pending petitions, resolutions on vehicle holds, and requests for reconsiderations that are yet to be approved.
In the CBS video, Madoff defended himself by acknowledging his crimes and how he committed them. Madoff also alleged that his trading operations were genuine and that fraud only occurred on the investment advisory section of his business. Madoff pleaded guilty and apologized to his victims. Bias in regulatory oversight led to fraud because Madoff's professional and social stature influenced the securities and exchange commission and his position influenced the investigation (Bernard & Boyle, 2009) . The senators and representatives finally agreed to focus on the SEC because they had ignored all the red flags and decided to close the Madoff investigations (Bernard & Boyle, 2009) . They also claimed that Madoff had misled the institution about the nature of his investment strategy. Also, they accused the SEC of contributing to the Madoff scandal because of their lax in oversight of financial markets and Wall Street.
References
Bernard, C., & Boyle, P. (2009). Mr. Madoff’s amazing returns: An analysis of the split-strike conversion strategy. The Journal of Derivatives , 17 (1), 62-76. https://doi.org/10.3905/jod.2009.17.1.062
CBS News. (2009, March 2). The man who knew [Video]. YouTube. https://www.youtube.com/watch?v=s68FR1MXT8Q
Feng, P., Sun, D., & Gong, Z. (2019). A case study of pyramid scheme finance flow network based on social network analysis. Sustainability , 11 (16), 4370. https://doi.org/10.3390/su11164370
Henriques, D. B. (2018). A case study of a con man: Bernie Madoff and the timeless lessons of history’s biggest Ponzi scheme. Social Research , 85 (4), 745–766.
van Raaij, W. (2016). Investment behavior. Understanding Consumer Financial Behavior, 89-101. doi: 10.1057/9781137544254_7
Wrenn, M., & Waller, W. (2021). Boss babes and predatory optimism: Neoliberalism, multi-level marketing schemes, and gender. Journal of Economic Issues , 55 (2), 423-431. https://doi.org/10.1080/00213624.2021.1908805
