Wednesday, November 13, 2013

RULE 8 Avoid Seduction

Early post this week. Leaving for Guatemala tomorrow and be back next Friday. 

At this point, we know how to manage our investments.  We know the importance of controlling our expenses.  We know how to identify low cost, well diversified funds . We know the value of sticking to an appropriate asset allocation. We know not to procrastinate.

Still there are potholes.  When it comes to money, it is easy to be seduced into believing there are easy riches.  Before you pooh-pooh the thought and say it can't happen to you, recognize that really smart people with high priced advisors get caught up in various schemes. Like those whack a mole games schemes continuously pop up.

In this chapter, Andrew goes over the various kinds of scams and even gives an example of a "too good to be true" scam he got caught up in.

For my part, I recommend that people limit to 10% of total assets any kind of investment other than low-cost, well diversified indexed funds targeted to a well-defined asset allocation.  So if you come to me with a newsletter whose recommendations are supposedly earning stupendous returns, or a small company your brother-in-law has uncovered, or an investment that pays a guaranteed 24%, my response will be "fine, keep it to less than 10%."

A further caution I suggest is to not let your money manager take custody of your assets.  I read recently of an elderly lady who was talked into selling her house and signing the check over to her advisor to invest.  Ouch!!!!

Follow the news diligently, and you'll see people fall for Madoff-type Ponzi schemes on a regular basis.  I have a client who came to me after an advisor had spent years in a church gaining people's confidence before fleecing them.  Scam artists are everywhere!

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