The term High Yield Investment Products (HYIP) is used to indicate non-traditional investment products promising much higher returns than traditional ones like stocks, bonds and real estate (I don't really consider Fixed Deposits or CDs as investments).

HYIP normally derive their profits from FOREX, futures, options, arbitrage and real estate flipping. These are areas where the tremendous leverage gives rise to possibilities of high returns.

With the proliferation of the internet as a medium of advertising, communication and business, many HYIP sites have sprung up. The returns are incredible - some promising 5% daily! Compare this to a bank deposit returns of 5% annually and you can see their attraction.

Unfortunately, the world of HYIPs is laced with scams. The anonymous and global nature of the internet has made it easy for anyone to simply set up a web site and fleece unsuspecting people who are buying into hopes of riches or financial freedom. One HYIP expert I know of puts this scam rate at 95%. In other words, you have to kiss 19 toads before you find your prince.

Many HYIPs are a play on the old Ponzi and Pyramid schemes. As long as they are paying out, people get excited and invite friends and relatives to put in more money. The power of Word-of-Mouth marketing is the strongest in the world, and should not be underestimated. If the HYIP operator can get money coming in faster than the money they pay out, the program will continue to earn big bucks for them as they take in the percentage. In fact, even those who came in early will also benefit, some tremendously. All these add to the emotional hype surrounding the HYIP.

However, once the money flow can no longer be sustained due to the operation of mathematical laws, they simply fold and move on. The losers (those who come in later, attracted by the hype and emotional draws) are left to lick their wounds.

Interestingly, if the scam rate is 95%, it means that there is a 5% out there with real programs that are paying out money regularly, for a long time. How then, do we invest in HYIPs without killing ourselves?

# Aim for cashflow rather than compounding. HYIPs come and go, and the winning attitude to adopt should be guerrilla tactics rather than taking the ground and slugging it out. Take out the money as much as possible, as soon as possible, until you have recouped your investment - the rest are then free money for you.

# Go small. Put in not more than USD100 at one time. In fact, there are those who espouse even USD10, if the programmes do not have minimum spends (investment). Spread out your investment over many programmes, and expect many of them to fail. This expectation will make it easier on you emotionally.

# Check out the website. It should be on its own domain (not a free domain) and should look professional. Try and look for those with a forum so that you can check out how well the admin responds to those they serve. Check out the operators and managers of the programmes (also called the admin). They should be easily contacted. A proper e-mail (not free e-mails like Hotmail) should be available and the response should be quick.

# Be wary of HYIPs that uses referral programmes to induce people to join. Experience has indicated that referral programmes are a big warning sign for 'Ponzi'! Be wary also of HYIPs that promises more than 20% per month. Such programmes are extremely difficult to sustain.

# Programmes that have been in existence for longer than a year are normally good programmes to join. They are also extremely rare though. It is easy to check how long the website has been operation by checking out Identity for Everyone: Domain Name Registration Made Easy. Starting from $8.95. However, you must be aware that a website can be registered first before it is operational. Few scamsters are going to wait that long though.

I trust that the information presented in this page has been useful to you. You may want to contact me if you have further questions.

Michael Chan used to be a teacher, before he left to run a managed fund. When his business failed, he returned to teaching, and is currently a Department Head at the Shanghai Singapore International School.