For the third time in three months, I have read a sad story from a friend or contact about how they had trusted another person to manage their investments and had put their retirement savings with a certain investment advisor, only to have the money stolen from them as part of a greater pyramid and Ponzi scheme. One of the commonalities among these three stories has been trust in just the person rather than trust in and verification of the person, investment strategy and the value of the underlying assets.
Thousands of people have lost hundreds of millions of dollars to Bernie Madoff and other similar Ponzi scheme operators who are incredibly skillful. I want to share some observations with you so you don’t fall victim to the next one who comes along.
- Diversification is essential. Never put all your retirement or other investment money into just one investment or with just one manager or fund. Self-directed retirement account investors often make that mistake.
- Review in detail the regular statements you receive regarding your investments. Look for changes in value that are not consistent with the overall market. If you are confused or uncertain about something you see on the statement, ask questions.
- Do not get distracted by the hype. Marketing materials, websites and other things can quickly be fabricated, even by nearly indigent con artists, to make them look like they are successful investment advisors. Get behind the details.
- Restrict authority. Do not allow someone to be able to, make trades or investments on your behalf. I’ve heard of people whose accounts have been churned by brokers who are allegedly trying to “time the market” when, in reality, they are doing things to generate higher transaction commissions and fees.
- Remember that investing is a marathon, not a sprint. Just like the story of the tortoise and the hare, slow and steady wins the race. Don’t be distracted by a short-term, meteoric rate of return, like we’ve recently seen with Bitcoin, only to see it fall dramatically thereafter.
Stay disciplined and invest in things you know, like and understand, and never ignore that gut feeling that warns you off from an investment.