Protect Your Funds From Investment Scams

This account may not be prominent here in Singapore but worth a read. Some people entrust their savings with a broker to help them manage and invest their funds.

I have heard of cases where a non-market savvy person entrusted a lump sum of money with a broker to help him invest and grow his money. It worked, initially! His $50,000 grew and after sometime, it swelled to over $80,000. He pump in much more funds now that he saw his savings growing fast and tremendiously.

That was during the bull market. The bear market set in, his earnings evapourated and in no time, his capital was erroded. His joy turns into sorrow as he saw his hard earned money gone up in dust.

Here's a story I read (source : http://www.kiplinger.com)
Ed and Ruthann Wolfe just wanted a safe place for their retirement savings. During his 32 years at the Rubbermaid plant in Wooster, Ohio, Ed had amassed more than $320,000 in his 401(k), all of it invested in low-risk Fidelity mutual funds.

After Newell bought Rubbermaid in 1999, early-retirement offers were made to more than 180 employees at the Wooster plant, including Ed, then 55. At the same time, many of his colleagues began attending investing seminars hosted by a Merrill Lynch broker, who was telling investors they could earn more money if they retired than if they stayed on the job. "There was a buzz going around the shop about how good this could be," recalls Ed. "We thought we couldn't afford not to do it."

The Wolfes turned over their entire $320,000 in retirement savings to the broker, with instructions to keep their money in low-risk investments because they needed to start making withdrawals right away. So they weren't concerned when the stock market tumbled in 2001.

Then they began hearing from friends whose investments had declined in value. Ruthann called the broker and was shocked to find out that they'd have to stop withdrawing money or go broke. Their retirement stash, which the broker had invested in high-risk Internet and tech companies, had plunged to less than $100,000. "I felt it could be the end of the world," says Ed, who went back to work driving trucks for two and a half years.

Stories like that are not always heard but is always happening. Entrusting your money with a broker seems like a good bet as the broker is supposedly more knowledgeable than us regarding investment.

On the other hand, some clients of mine who are also investors told me, "why trust others to manage your funds, pay them a percentage and they get to sleep even if the market is not doing well? Afterall, they are not playing with their own money". Reasonable advise from them. They are also the ones who had made me realised, it is time to relook money and how we could better manage it. Thank you, I am getting mature with money and sharing little such knowledge with others.