Sucker = Investor?

Some people never become investors because they’re afraid of being conned. The stories become the stuff of legends and, for the fearful, they define the financial landscape.

Banks pens trust quoteMy mother never quite trusted banks, she probably was indoctrinated with the fear as a child born near the end of the Great Depression. So, as she considered the end of her life, she decided to save a few thousand dollars to cover her funeral expenses.

Instead of opening a bank account for her savings, she stashed the money in a shoebox in her closet. How do I know? Because while she was visiting me in California, her grandkids back in Florida stole it and went on a drug binge. They were entrusted with the keys to her condo so they could water the plants and do a little housecleaning for her — though their drug problems were already well known.

It happens over-and-over when folks refuse to learn (or learn the wrong lesson) about how investments work and who to trust with their money (and house keys). I’m sure my parent’s experiences helped shape my do-it-yourself attitude towards investing. Combined with my love of learning and natural bent towards financial stuff, I’m fairly certain I’ll never be featured in a story like the one I just read at Bloomberg News.

Incredibly, they got several people to admit to handing over thousands of dollars to a FOREX trading website that’s now disappeared with their money.

It’s the modern version of an age-old con and, if you don’t learn the correct lessons from it, you could end up not only as a victim but missing out on the financial security knowing how to invest can bring you.

The lessons, in order of importance (IMO):

1. There’s no such thing as a risk-free investment.

Yeap, legitimate investments can cause you to lose your principle. A company can go out of business, a house or apartment building can be destroyed, inflation can surpass your interest on a bond. That’s why we diversify.

2. Know who you’re sending your money to!

Checking out the guy’s website doesn’t count as due diligence. Some completly legit brokers and financial planners have crappy websites and these con artists had a very attractive one. They obviously invested a lot of money into looking the part but none of the victims mentions anything about verifying the company or the supposed principals with any regulatory or licensing agency.

In the U.S., we have two main financial information sources:

The Securities and Exchange Commission (a federal government entity): and FINRA (Financial Industry Reglatory Authority) which has a very useful piece on scams at:

There’s a reason why we have government regulations of financial institutions — use them to do your own due diligence before sending anyone your money.

Does it mean you’ll never lose any money? NO (see rule #1) but it does make it harder for scammers to steal people’s investment funds. Not impossible, as Bernie Madoff proved, but at least he finally got shut down and went to jail.

The guys will never be caught.

3. Understand what you invest in.

I prefer a hands-on style and I like to know how the asset or equity I invest in will make me money. If you have no idea how or why a scheme is supposed to work, you have no business investing in it.

Does that mean you’ll miss out on some lucrative investments? Probably. But it’s much harder to recover from a big loss than to live with reduced gains.

4. If sounds too good to be true…

We all know this one, and yet seemingly smart people still get caught in the web of big promises.

Some of this I’ve learned from experience, some from keeping my eyes and ears open. We all make mistakes, I just hope reading this and the linked stories helps someone else hang onto their money and their desire to become a successful investor.

Live Long and Prosper, Leah the

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