How To Avoid Financial Ruin
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on
February 23rd, 2009
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Someone I know just lost all family savings. Over half a million dollars gone. What happened? Stanford Financial Group happened and their scam has ruined many thousands of people. My friends family lost every penny saved during the past 10-15 years. A complete disaster of course. This is the second scam in a short time, no one could have missed the Madoff Ponzi scheme which was disclosed in December 2008. It's easy to look back and have all the answers, lets instead look forward and take some simple steps to avoid financial disasters.
I've worked 15 years in the most competitive financial trading environment possible, where gut feelings rule decisions. After a while, one learns to smell danger or a scam and be skeptical of what seems too good to be true. Like Madoff and Stanford Financial Group.
Take these simple steps to hold on to your family money and avoid losing your savings:
• Spread the risk. You've surely heard the expression "Don't put all eggs in one basket". It's the simplest way to avoid losing it all. Don't put more than 10-20 percent of your savings into one investment or company. If your investment would go belly up it will hurt but you have only lost a small percentage of your savings and life goes on.
Spreading the risk also means not putting all your money in the same kind of investment. Don't have 100% in Nasdaq stock, Madoff funds, Stanford funds, or with that buddy who promises to make you rich. Have some money in cash accounts, some in stock, some in real estate,or put some under your pillow. Spread you money, it can't be said often enough.
• Use insured accounts. There is unprecedented financial turbulence in the markets. Check what kind of federal insurance your accounts are protected by. If a company offers you an outrageously high return on their CD's, line Stanford Financial Group, check if your money is safe. You might have heard of "FDIC Insurance"etc., sounds very boring but it might be a life saver. This means the federal government guarantees your money up to a certain amount no matter what happens. Amount varies by country but in US, your first $100 000 is usually protected. If you have more money than that to invest, using many accounts might be an option.
I recently deposited money in an Islandic bank which went bankrupt. Interest rate was great and I opened more than one account to make sure my money was still covered by federal insurance. The bank went bankrupt, like all other Icelandic banks, after a year or so. A week later my money was paid out, with interest. Federal insurance is boring but in these times it's a nice thing to have.
Insured accounts might offer too low return or not be practical for some. Then look at my first point and spread the risk.
• Common sense. If it seems to good to be true, think twice before investing. If interest rates are 3 percent and a company guarantees a rate which is substantially higher, watch out. Like Standford Financial Group. Or that Nigerian cousin to the president who needs you help in transferring $50 million out of the country. This might be called a Ponzi scheme, pyramid game, or just a plain rip off.
That's it, three simple steps to avoid financial ruin. Best of luck keeping your hard earned money safe.
Yeah, but you have to have a little knowledge to _know_ that nobody makes money in every year like clockwork. You also have to know that high “rates” paid for so-called CDs are a sign of trouble. If you’re don’t even know that, of course you invested with these crooks.