There are two common types of investment plan that are offered by HYIPs.  Simply stated, one returns your principal at the end of the plan and the other does not.  In the second case, the idea is that your principal is returned to you as a part of your earnings.  This can get confusing at times, especially when comparing investment plans that run for different lengths of time.

At EmilyNews, we are somewhat proud of the fact that we introduced a term called daily net interest (DNI) that enables a person to cut through all this confusion and come up with a single number that is a measure of the profitability of an investment plan.  We discussed DNI in great detail in HYIP Insights #12 (that you can read here).  However, in the way of a very quick summary, DNI is the AVERAGE daily profit that you receive over the length of an investment plan.  This smooths out the fluctuations in the profit you receive on a daily basis as, during some portions of an investment plan you might actually be making zero profit (when recovering your investment) while at others, you will be making a relatively large profit.

But, is this all there is to it?  If we are comparing two investment plans, do we only have to compare their DNIs in order to make a decision as to which one is the best?

Let’s get back to our discussion of the two common types of investment plans and take a look at an example of each.  Here they are:

Plan 1:  Pays 2% interest per day for 40 days and returns your principal at the end of the plan.

Plan 2:  Pays 4.5% interest per day for 40 days but does NOT return your principal.

Let’s look at Plan 1 first.  Since this plan will return your investment, assuming that it doesn’t close prematurely, the daily interest that you receive will be pure profit.  In other words, it will be your daily net (net means profit) interest or DNI.  So, for Plan 1, the DNI is 2%.

Now, let’s look at Plan 2.  In this plan, you receive a gross daily income of 4.5%.  For the entire 40-day period, this comes to 180% (4.5 x 40).  Subtracting 100% from this to account for the fact that this includes your principal, your total net interest will be 80%.  Finally, averaging this out over the 40-day length of the plan, you get a daily net interest or DNI of 2% (80/40).

You can see that both plans have the same DNI which means that, in the 40-day period, you will make exactly the same amount of money with either plan.  So, it doesn’t matter which plan you choose to invest with, right?  Wrong!  Well, everything IS alright if the program survives for the full 40 days.  If it doesn’t, then obviously, for Plan 1, you won’t get your principal back.  In addition, you are earning at 2%/day in Plan 1 whereas, in Plan 2 you are earning at 4.5%/day, which is over twice as much.

Let’s take a quick look at how long it takes each of these plans to break even.  You do this by dividing 100% by the interest paid per day.  So, for Plan 1, it will take 50 days (100/2) to break even.  The plan is only 40 days long.  So, this means that you won’t break even in this plan until your principal is returned at the end of it.  For Plan 2, you will break even in around 23 days (100/4.5).   So, for the last 7 days of that plan you are earning pure profit.  This also implies that halfway into the 23 days — 11 or 12 days — you have earned back half of your investment.  So, to summarize, for Plan 1 you don’t break even until your principal is refunded at the end of the plan while in Plan 2 you break even after 23 days — and, of course, are recovering your investment over twice as fast as in Plan 1.

So, here we have two plans that are equally profitable (have the same DNI) IF the program doesn’t close before the investment term is up.  However, if it does close prematurely, Plan 2 — that returns your investment as part of your earnings — is a clear winner.  The bottom line is that, everything else being equal (like in this example), investment plans that return your principal as part of your earnings are superior to those that return your principal as a lump sum at the end of an investment plan.

A lot of us knew this already.  However, in case you didn’t, now you do!

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