How To Avoid A Madoff From Taking Your Money

Investing

How To Avoid A Madoff From Taking Your Money

1st July 2009

Bernard Madoff who for decades swindled a total of US$65 billion out of unsuspecting firms, NGOs and individuals was sentenced to a term of 150 years in prison. Now at the age of 71, chances are he will never get out of prison. The ponzi scheme that he orchestrated is said to be the largest ever in history. The sentence may or may not be fair for the victims that have lost their money, especially those that gave his firm their life savings to invest. Moral of the story, our financial industry has failed to protect investors against fraudsters like Madoff from stealing their money. Solution? Investors should learn to protect themselves and there are ways to do just that.

Investing The truth of the matter here is that the investment world has not seen the last of investment fraud. More recently news of a billionaire by the name of Allen Stanford has emerged as he is also being accused of being involved in investment fraud. These are just the guys we know about that are being caught but you can count on the fact that there will be many more so called investment firms trying to swindle money out of innocent investors.

I personally have invested in a few shares on the stock market. However, you as an investor should practice due diligence when entrusting your hard earned money to a broker or investment company. Here is a check list I follow to avoid the likes of Madoff from taking my money:

1. Research the broker or firm before you invest

The SEC (U.S. Securities and Exchange Commission) is the legal federal agency in charge of regulating the securities industry and the stock markets. The federal law requires brokers and investment advisors to be licenced and registered and make important information public. The SEC ensures this and also there is a database called the Central Registration Depository in which you can find information on brokers, the firms they work for and their representatives. You can find that information on the SEC website.

2. Do not hand over all your money to a single investment advisor or broker

As the age old saying goes "do not put all your eggs in one basket". Sure I have invested in shares on the stock market but I also have money sitting in less volatile investments such as Certificate of Deposit accounts, Money market accounts and mutual funds. For more information on these and other types of investment accounts read my post titled "Banking and Saving a benefit to you?"

3. Ask your broker whether the product or products are insured

This is your hard earned cash you are about to entrust someone else with. Do not be rushed into choosing an investment product because your broker says so. Do your own research and do not be afraid to ask the broker questions. The questions you should never forget to ask amongst others are is the product insured by the government for example and if so what amount is covered? What are the fees I will be charged? How often will I get statements? This can really save you in the long run.

4. Keep track of your investments

Once you have chosen an investment firm or broker, it is important to make sure when you get your statement you check through it and understand what it tells you. Get help from a banker or financial planner if you feel you need more information. Do not ignore statements or leave them for another time. Read them!

5. Track your stocks on your own

Something I do is tune into the financial channels or go on the internet and search for the shares I have invested in to see how they are performing. This way you can advise your broker to sell or add to your portfolio. Tracking your own stocks means you can see for yourself how well your stock is performing and you can do more of your own research on that stock. When it comes to your money, do not always rely on others.

6. Keep an emergency fund with at least six months' worth of emergency cash

It is important to have an emergency fund or savings account which you can access fairly easily should the need arise. Keep enough cash in there to cover at least six months' worth of bills and living expenses should anything go wrong. This can be a normal savings account opened through any bank. Remember this is an emergency fund and should only be used if you truly have an emergency.

"He becomes poor that deals with a slack hand: but the hand of the diligent makes rich. " - Proverbs 10:4

Comments (6):

Terence Says: Wow thanks for the advice | 07.01.2009 |

Janine Says: I have been thinking of investing but was afraid. I didn't know there was something like the SEC, thanks for the information Kevin | 07.01.2009 |

Mike Says: This is something people tend to forget. Thanks for the information | 07.01.2009 |

Cathy Says: Very informative thanks | 07.01.2009 |

Edith Says: I like the one about not putting your eggs in one basket, good one! | 07.01.2009 |

Victor Says: This is good advice and hope people will learn from it and actually put it into use | 07.01.2009 |

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How To Avoid A Madoff From Taking Your Money

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