“On the fourth day of Christmas my broker gave to me, 4 ways to double my money…”
“If it’s too good to be true, IT IS!” We all know this to be true in many facets of our lives, but for some reason when we talk about investments people are willing to throw caution to the wind for the opportunity to make A LOT of money. I was told years ago that people are motivated to take excessive risk for two reasons: fear and greed. Let’s take a look at four ways people have been caught up.
1. Gold: Unless you have been living under a rock, you cannot miss the biggest investment of all time! Entire radio shows are devoted to this new way to get rich…er, I mean “diversify your portfolio.” Described as the latest “new paradigm” in investing, it’s a can’t lose deal. Why, even media stars like Glenn Beck and G. Gordon Liddy say so. The question is, “does gold make a good investment?” The truth is gold has not even kept up with inflation until the past ten years. Such a short period that those in academia cannot consider a true asset class. Ask yourself this question: “who out there is telling you to load up on gold beside those profiting by a sale?” And, is it good “timing” to now put your money into something that has tripled in price the past 5 years?
2. Real Estate: Speaking of timing, where have all the promoters for “get rich in real estate” and “no money done” gone? Why, they are now promoting gold of course! I don’t think we have to look too far beyond our backyard barbeque grill to see the misguided and hapless. Does it all mean that you absolutely can’t make money in real estate? Of course you can, but not without being highly skilled, well capitalized and having some luck. Forget about doing “Rich Dad, Poor Dad,” it’s back to building wealth the old fashioned way, SLOWLY. (FYI, Robert Kiyosaki is now peddling options)
3. Technology: Just a short anecdote. In 1999, one of the “smartest” clients I ever knew decided to move his account to ABC firm because they could double his money by buying all the neat dot com’s. After all, technology is here to stay and as his new broker told him, “THIS TIME IS DIFFERENT!” It certainly was different. Between 3/2000 and 12/2002 his account lost 90% with no possible recovery in sight.
4. Bernie Madoff: An interesting study in how even rich, successful, smart people get duped. It boils down to the fact that people believe they can acquire that which does not exist.
On this fourth day of Christmas consider carefully the to-good-to-be-true investments. Odds are that if you have just heard about it, then it is already too late.
Philip W. Guske