In my mind as a fifth-grader, Mr. James M. Migaki was the smartest man who ever had lived. Every day was special in Mr. Migaki’s class. He taught us it’s important to learn history so we never would repeat mistakes made in the past. He made that lesson real when he said that last year counted as history, and so did last month and last week. Mr. Migaki said something is only a mistake if you can’t fix it. Sometimes he would let us retake our tests to learn from history and fix our mistakes.
Speaking of lessons we can learn from things that went wrong in the past, how about that Bernie Madoff character? He’s the guy who, for decades, was ripping people off, claiming to be investing their fortunes, paying them inexplicable returns on their money, and all the while stealing from them blind. There are several important lessons that all of us need to learn for good while this scandal is fresh in our minds:
ä Know what you own. No matter what type of investment you have, make it your business to know what you own and where your money is. If your fund manager or broker cannot give you an explanation you can understand, that is not necessarily a reflection on you. It could be that person is less sure than you are. Keep asking questions; keep researching; keep digging; and don’t stop until you can explain what you own through your investment in 25 words or fewer.
ä Know who’s minding the store. Madoff’s clients were too trusting despite his market connections.
ä Don’t fall for unbelievable deals. Remember the adage: If it’s too good to be true, you can bet that it is. Get rid of your lottery mentality. There are no get-rich-quick deals out there. If you think you see one, figure out what it is really. Then run.
ä Trust but verify. I don’t know what kind of annual accounting these Madoff clients received, but now we know that it was all fake. A reasonable effort at verifying the returns would have turned up the truth.
ä Don’t assume someone else will protect you. No doubt the Madoff crowd assumed they had some kind of protection against being stung by a scoundrel. After all, most securities professionals and others carry insurance to cover clients in the event of an embezzlement or money scandal. Apparently, the unsuspecting investors in the Madoff scheme never thought to ask about insurance. Whether you think you’re protected or not, speak up. Ask the questions, even if you think you might appear dumb.
Perhaps the best thing we can learn from the Madoff caper is this: Dumb questions are a lot better than dumb mistakes.
Mary Hunt is the founder of www.DebtProofLiving.com and author of 18 books, including her latest, “Can I Pay My Credit Card Bill With a Credit Card?” You may ail her at email@example.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, Calif. 90723.