This Week in Your Wallet: Investing Advice From… Bernie Madoff - Jean Chatzky - Making money make sense
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This Week in Your Wallet: Investing Advice From… Bernie Madoff

Who is the last person in the world you’d want financial advice from? For those of you who have seen a family member make a serious financial mistake, you might be thinking of that person. For those of you who have watched celebrities and athletes squander millions of dollars, you might be thinking of one of those figures. As for the rest of you… well, I wouldn’t be surprised if you’re thinking of the person in my headline: Bernie Madoff, the man who orchestrated the biggest Ponzi scheme in history and lost millions and millions of his clients’ dollars.

However, just as a security breach can teach a bank how to bolster its vaults — or, how watching the makeovers on “What Not To Wear” can teach you dressing strategies (v-necks elongate, dark jeans are best)  — the man who bilked investors out of millions actually has some decent advice when it comes to how not to get bilked yourself.  Madoff recently opened up to the Wall Street Journal, and offered these nuggets of information:

  • Go with an index fund. “The best chance for the average investor is to put money in an index fund. There are lower commission rates and more professional management with these types of firms. It’s the safest and least likely places to get scammed,” Madoff told the Journal. If you’re a longtime reader of this newsletter, you’ll know that I agree with this.
  • Don’t buy what you don’t understand. You may have heard me say this before, too, and Bernie Madoff is one of the reasons why I firmly believe that you shouldn’t buy a product (or investment) you can’t explain. “If you don’t understand something, then don’t invest in it. People asked me all the time how did I do it, and I refused to tell them, and they still invested with me,” Madoff said. “My investors were sophisticated people, smart enough to know what was going on and how money was made — but still invested with me without any explanations. Things have to make sense to you. If you don’t understand the investment, don’t put your money there.”
  • When in doubt, ask for your money back. Yes, doing this could create an administrative headache, but if you’re really worried about your money, ask your broker to give it back to you. “Ask for all your money back about every two years to make sure [a firm is] legitimate,” Madoff said. “If my clients had done this with me, I would have been caught sooner.”

Check out the full Journal piece, linked above.

And now, here are the other headlines for the week:

 

Lagging retirement savings

According to a concerning new analysis of census data by financial site Interest.com, seniors in almost every single state are falling short when it comes to their retirement savings. Citing the general rule of thumb that you need 70- to 80-percent of your pre-retirement income during retirement, Interest found that just two states were meeting that benchmark: Hawaii and Nevada. The majority of states surveyed fell into the 50-to-60-percent range; Massachusetts, New Jersey and North Dakota rounded out the bottom of the list with income replacement rates of less than 50 percent.

“We’re seeing much broader differences in retirement preparedness,” said Michael Finke, a professor of personal finance, in the Interest report. “When you give people greater responsibility, it’s going to mean a greater variation in income.”

I know saving for retirement can be daunting, but running the numbers using a calculator can help you better visualize that goal. And if seeing the numbers don’t give you peace of mind, perhaps hearing me say, “Yes, You Can Retire” (that’s the title of the next Money School class, next Tuesday at 8pm ET) will help!

 

Investing in the next “Matilda”

If you follow me on Facebook or Twitter, you might know that I am a big fan of musicals and plays, whether on Broadway or in the auditorium of my daughter’s high school. In fact, you might even know that I once invested in a Broadway show — and lost. It’s not an investment I’d recommend for everyone but in case you were inspired by this Sunday’s Tony Awards*, I wanted to share this recent MarketWatch piece on how to invest in the next Broadway smash hit. Among the rules it highlights: there’s no way to know if your show will be the next Kinky Boots, but aligning yourself with a producer in the know won’t hurt; you generally need at least $25,000 on hand if you want to invest in a musical and $10,000 on hand if you want to invest in a play.

*Speaking of the Tony’s: even if you’re not a fan of the theater, the opening number was truly must-see-TV. I had a smile on my face the whole time I was watching it!

Have a great week!

Jean

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