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How to Avoid the Next Ponzi Scheme
What would you do if someone told you they could get you 70% to 120% annual returns on your investment? Here’s what you should do. RUN AWAY!
I just finished reading another sad story about Minnesota investors who allegedly lost all their money to a fraudulent investment advisor. After Bernie Madoff and Tom Petters, oh yeah, and Trevor Cook, I am a little shocked that people continue to fall for the allure of easy money. It’s easy for me to say, though, because I work with investments all day. I know the red flags. In hopes of saving just one person from the heartache of losing all their money to a Ponzi scheme, here is what you can do to protect yourself.
- Do not fall for the allure of fantastic returns. If it sounds too good to be true, it is. You build long-term wealth with returns of 6%-8% on average today. Yes, you will have good years when you earn 30% on a balanced portfolio (rare, but it happens). But if someone tells you they are shooting for 70% annual returns, do not walk – RUN AWAY!
- Make sure your money is kept at a big financial firm. Do not ever write out a check to the name of your investment advisor or his/her company. Write it out to the likes of Schwab, Fidelity, or TD Ameritrade. Those are independent companies that hold the money for our clients.
- Make sure you understand what you are invested in. Ponzi schemes are often run by people who claim to be investing in options, futures, or even more obscure things. Yes, options and futures are legitimate investments for people managing risk. But if you don’t know how it works, you shouldn’t trust someone to invest in it for you. Stick to stocks (ownership in companies) and bonds (loans).
Those three rules will greatly decrease the odds of you falling victim to a fraudulent investment. There are many more things you should look at in order to find a good investment advisor. For today though, we’ll stick with the basics. Don’t get ripped off.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.