Invest in Portland

As a disclaimer, I am not an advisor or in the financial world, just an average guy who worked hard most of his life. When I was in my thirties, I got a high-paying job and suddenly had a huge amount of extra money at the end of the year. A few of my fellow coworkers recommended I go to a financial advisor that they used to help their money grow. I met with the man who explained how I could not only rapidly increase my wealth, but also tax shelter it. Within 2 years, all of the $60,000 I gave him was gone and the IRS was auditing my returns. They fined me and disallowed all deductions, costing me thousands more. I vowed to never use such a company again. Later the company disappeared along with my friend’s investments. Lesson learned.

Now fast-forward 20 years. I began investing in stocks with a small neighborhood investment group. We only placed $5000, but, after five years, still lost money. Another lesson learned. More recently, I retired from my job with a lump-sum payout, which I turned over to a trusted investment company. My advisor, Mr. C, explained that the market, with a historical rate of return over 60 years of 10.8%, was still the best place to go. We also tossed in a few bonds paying around 5% for balance.

After the first year, my capital gain taxes and transactions fees cancelled all my gains for the year. Mr. C said it was a fluke, so not to worry. But every day there was another buying or selling fee and it was getting troublesome. I finally told him to go another direction, that didn’t involve all these trades. By the way, he was getting a 1% fee on top of everything. So the next year, he moved me into an annuity without explaining the downside, which was huge. Yet again I trusted his judgment because he was so very convincing. He reassured me that everything would be great for my future and not to worry. I would be set for life in my 60′s.

But continued to watch my account go like a yo-yo as the stock market reacted to every little piece of economic news. It was driving my crazy seeing loss after loss. Finally, I read about self-directed IRA’s and decided that it was time to seize control back from Mr. C. So I asked him to liquidate everything, and he told me I could do it all myself. Anyway, he was going on vacation. So I did and discovered that the penalties for closing the annuity would wipe out everything I made that year. What a shocking revelation! But I did anyway.

Now I am can guide my own investments and make my own decisions, both good and bad. But it’s my money and that’s the point. I’m currently looking at commercial real estate trust deeds as a future investment.

As a word of wisdom to those reading this, understand a few basic concepts:

Financial advisors make money off your account, whether it goes up or down. They will always recommend stocks or bonds, regardless of what they pay. They work in a world you know little about. They are more apt to put you into an investment that pays the highest fees. There is no guarantee you won’t go broke. And if you do, they have other clients. But do you have other savings?

I would encourage you to manage your own funds. Even using CD’s or money market funds would have saved me a lot. Any type of advisor, even from the bank, will have some ulterior motive that eventually will cost you plenty. There are many other avenues besides the stock market. Look at your options and diversify. Guard you money like it was gold, which it is. And if someone has a hot stock tip, tell them where they can put it.

It is time to throw out the financial gurus, kick out the credit counselors and fire your investment advisor. It is time to stop taking advice from every Tom, Dick, and Harry that wants to tell you how to manage your money and where to spend it. It is time to take the reins of your financial future and become your own personal finance planner.

Too many meekly follow the advice of the countless personal finance advisors that day in and day out guide you on the best way to spend your money. In most cases you are being led astray from the common sense that you uniquely have, and the instincts that can build your wealth. Trust yourself and become your own finance planner.

If you think this is a crazy idea, and you would much rather let someone that really understands investing, credit and the financial markets manage your money, then you have discovered your first problem. I would argue that if you do not know enough to properly manage your own money and be your own personal finance planner than you need to learn, and fast.

To be a good client, a savvy client that understands finances and money to a degree to be able to accept the sound advice of your advisors and steer clear of the poor choices that are advised, you must have a solid foundation of financial planning skills. You need to be able to see the money opportunities that your advisors bring to you, and have the confidence to know which to jump upon with gusto. This type of confidence does not come from meekly letting others manage your money and plan your finances.

In addition to the need to be an informed client to be a good financial planning client, you need to know when to say no to your financial advisors. As wise as the gurus and counselors may be, your situation is unique to yourself. Your money, goals and motivations are most uniquely understood by you and you alone. If your spirit is not behind the financial plans you make, or are talked into making, they are destined to fail. I will repeat this, as it is that important to properly managing your personal finances. If you do not fully believe with all your spirit in the direction your money is being directed you will fail.

Don’t fall victim to the personal finance planner industries never ending hype that you are incapable of wisely planning for your monies growth. It is a bold faced lie. Never forget you are capable of making wise decisions regarding your money, and you are fully capable of the common sense required for wise financial planning. Take the reins of your wealth today, and you will thank me for it tomorrow.

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I tell those who ask that there are two types of successful investors: the skeptical optimist or the optimistic skeptic. Either of these might have identified a number of reasons to stay as far away from Bernie Madoff as possible.

Avoiding fraud is not rocket science but then too, the regulatory authorities do not make it easy. In the Madoff case an objective observer might wonder how it could happen.

How were so many intelligent people, including professional money managers, duped for so many years? A quick and easy answer is that the client-victims seemed to have placed perception ahead of due diligence. An unkind critic might reverse the words in that phrase – “If you’re so smart why aren’t you rich?” The investors may have relied on reputation, image, and the word of other investors as the basis for their trust. It is the latter, client testimonials, that are the lifeblood of any Ponzi scheme. The client who unknowingly receives the principal investment of newer clients as his “investment return” can become the unwitting source of additional victims for the perpetrator.

A deeper examination reveals a higher level of complexity. Bernard L. Madoff Investment Securities LLC is an investment advisor registered with the Securities Exchange Commission. This implies investor protection in the form of regulation and oversight. If an advisor retains custody of client assets then he must have independent audits performed in addition to the unannounced audits conducted by the Commission. If the firm does not retain custody (we are in this group), then the client has the statements of the third party custodian to match against the advisor statement. This check and balance system is virtually fraud-proof. In the Madoff case, the independent accounting firm was an obscure, two-person outfit. That relationship alone raises the first red flag.

However, a review of the advisory firm’s ADV, available to the public at the SEC website, should have raised additional questions. Item 5 of the ADV application provides information about the advisory business. For example, for the answer to the question about how many employees perform investment advisory functions including research the box “1 to 5″ was checked. Question B (3) asks how many firms or other persons solicit clients on your behalf. The answer checked here is “zero”. For question C the box 11 to 25 is checked for number of clients served and that is confirmed in question F which lists 23 discretionary accounts totaling $17 billion in assets.

If you were a prospective investor from Palm Beach being solicited by an outside firm and you knew of at least thirty other individuals locally who invested with Madoff, you would need some clarification to those ADV answers. A look back at question D which asks about types of clients provides a clue. Here “51-75%” was select for item (6) – other pooled investment vehicles (e.g. hedge funds). It is clear now that your investment will be under the umbrella of a Madoff hedge fund and that S.E.C. oversight and regulation does not apply. Before making a decision to invest you could examine the characteristics of The KL Group, a West Palm Beach hedge fund that went under in recent years.

Despite the wide difference in scope, you would find the following in common:

The principals led a first class lifestyle, had a history of success, and were perceived as experts. The annual returns were well above normal, almost “too good to be true”. Their offices were expensive and well appointed. Their strategies were secretive and too complicated to explain. They were selective as to client acceptance. Their clients relied solely on company prepared reports.

Dorothy eventually did return from the land of OZ but not before finding out that the wizard was just a befuddled old man behind a curtain. Image and reputation are easy to produce; long term, extraordinary results are not. If not given the opportunity to pull all the curtains aside, your internal skeptic should overrule the resident optimist.

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