A Ponzi, or pyramid scheme is a scam in which people are persuaded to invest through promises of unrealistic high returns, with the early investors being paid their returns out of money put in by later investors. Investors that get out early during bull markets usually profit handsomely, while the herd of investors that enter the market late lose badly. If you’re investing in a qualified retirement plan, your contributions are automatically allocated to certain mutual funds. People in these funds are usually the ones losing the most money in market corrections and crashes, while professional investors not in the same funds can move into more unrestricted and flexibly, out of the market with their profits intact.
Also, worth considering; with required minimum distributions from your retirement plans at age 70 and a half, you are forced to sell your mutual funds and withdraw money, even if you don’t want to. You will need new money flowing into the market when you have to sell your mutual funds. If there aren’t many, or worse yet, any new buyers and only sellers, the market sinks or even collapses like it potentially could with 78 million baby boomers taking required minimum distributions over the next 18 years.
There are other reasons that also contribute to the ‘ponzi’ nature of the stock market. One is the ‘artificial injections’ into the stock market at the expense of future retirees who will be left holding the bag on depreciating assets once the Fed stops the artificial injections, and asset prices go down.