What is typically a sign of a Ponzi scheme?

The hallmark of a Ponzi scheme is the promise of low risk with high returns, which is often used to attract unsuspecting investors. Ponzi schemes typically lure investors by guaranteeing unusually high returns on investments with minimal risk, which is fundamentally unrealistic and unsustainable. The strategy relies on attracting new investors to pay returns to earlier investors, creating an illusion of profitability while no legitimate business activities are generating actual revenue.

The reason this choice is so indicative of a Ponzi scheme lies in the fact that legitimate investments are inherently linked to a degree of risk, and structured returns based on actual performance metrics rather than improbable guarantees. The false promise of low risk combined with high returns raises red flags and indicates that the investment may not be based on sound financial principles, highlighting the deceptive nature of Ponzi schemes.

The other options imply characteristics that are typically present in legitimate investment opportunities. A history of stable returns regardless of market conditions can be indicative of standard investment practices, while high transparency in investment operations and recommendations from licensed financial firms tend to signal reliability and legitimacy rather than fraudulent schemes.