There are a few good ways to protect yourself when investing, and some of the ideas are no different from ideas on the street when we were young. First and foremost is the idea that “if it sounds too good to be true…”
The number one way to protect yourself is to make sure you talk to the company, not your personal advisor or investor. Eliminating the guy with his finger in the dike is just common sense.
Secondly, do your homework and check the social acceptability and good standing of companies in which you are invested. It ties in to the ‘too good to be true’ theory. If your investor says there is nothing to worry about but blog and Internet forums are full of negative comments, then something may be worng. Perhaps your investor is too busy balancing the Ponzi balls to notice.
OK, so we have a finger in the Dike and Ponzi balls. What is wrong so far? The U.S. Securities and Exchange Commission (sec.gov) lets you search Investment Adviser Public Disclosure forms online, which give information about advisers’ business affiliations and any disciplinary actions. Certainly after doing your homework you might notice something.
No matter how famous, friendly, or connected someone is, it certainly does not mean they are doing their job, much less doing it correctly. Just look at regulatory oversight of subprime, or the severe lack of it, as one example. The moral is Never Assume
Demand transparency and know where your money is being invested. For instance, investors at HSBC – a global bank – found out that HSBC was buying predatory lender Household International. Ultimately renamed as HSBC Finance, the decision cost HSBC more in writeoffs than they paid for the predator to begin with. You have a right to know what you are investing in.
Get everything in writing. There is too much risk and too much money to function with just a handshake. Those days are over. Read the fine print. If necessary ask an attorney, and if the fine print is missing or the attorney is confused by it use caution
Remember to protect yourself when you choose a financial adviser. Good ole’ boy Bernie (Bernard) Madoff ruined the retirement accounts, net worth, and financial holdings of many people. Those tied to jobs a non-profit and charitable organizations lost their jobs because there was nothing left to work with. The money was gone.
The current credit crunch left Madoff without enough cash to cover his scam. Madoff’s $50 billion scam came unwound when too many investors tried to pull their money at the same time. My wife claims he will not be the last one to be exposed as a fraud and a sham. Just be careful and use common sense. If an investment is a ‘guaranteed investment’ you should dig a little deeper.