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Are My Investments Safe?


This is a question that I hear and am asked often.  Concerns over the issue of investment safety have increased markedly over the past few years in the wake of high-profile investment scams, such as with Bernard Madoff, as well as a result of the severe market decline of 2008-09.  This is a question that should be addressed from several points of view.

An assortment of United States coins, includin...

An assortment of United States coins, including quarters, dimes, nickels and pennies. (Photo credit: Wikipedia)

Which investment was the safer choice? 

A major concern of investors in or approaching retirement is the risk of losing money from their investments.  Any way you look at it, a 37% loss in the S&P 500 Index (as occurred in 2008) is devastating, especially to an investor on cusp of retirement.  Many investors sold out of their equity positions in late 2008 or early 2009 just as the stock market was nearing bottom (the S&P 500 hit its low point of that cycle on March 9, 2009).

Let’s look at an investor who had $10,000 in an S&P 500 fund at the beginning of 2008.  The index lost 37% for the year so his fund was worth roughly $6,300 (we will ignore fund expenses for this example).  If this investor sold his holding and moved it all to a money market fund his money would have “grown” to maybe $6,500 by September 20, 2012.  As anyone who invests in a money market fund knows the interest rates are abysmal.

By contrast if the investor had held onto his fund, it would have been worth about $10,899 as of September 30, 2012.  While the market fund would not have lost any money during a couple of down periods over this time span, the investor certainly lost purchasing power.  Which investment was the safer choice?

When investing client money risk of loss is certainly top of mind, hence the reason client dollars are invested in a diversified portfolio that combines their need for investment growth with their aversion to losses.  I would tell any retiree or pre-retiree that their biggest risk in retirement is loss of purchasing power (aka running out of money) vs. the risk of investment losses.

Safety from fraud 

Whether its Madoff, Alan Stanford, or any number of lesser know fraudsters investment scams are in the news a lot.  I’d like to tell you that using a fee-only NAPFA member like me is an iron clad guarantee, but alas we’ve had several former members accused of defrauding clients, including two former organization chairmen.  Part of protecting yourself is using you own good common sense.  Ask these two questions (among others):

  • Are the returns touted by the money manager too good to be true?  In the case of Madoff he sold false consistency.  The returns were very steady, but unspectacular.  They were also not possible given how he claimed to have invested the money during the years of his fraud given what actually occurred in the financial markets.
  • Will your money be housed at reputable third-party custodian (Schwab, Fidelity, your bank, etc.)?  If not, this is huge red flag, end the relationship immediately.  This was again a key element in Madoff’s fraud.

Over and above this, check up on what your advisor is doing.  Get online access to your accounts and review each statement carefully with an eye towards verifying and understanding each and every transaction that occurred. 

Safety from fear mongers 

This isn’t one that makes many lists of investor concerns.  I won’t call these folks fraudsters as such, but when the markets aren’t doing well folks telling you to shun more traditional investments and put your money in gold or index annuity products come out of the woodwork.  Both of these can be viable alternatives for a portion of your investment allocation, as can many other non-traditional vehicles.  Again, understand what you are buying, the fees involved, any restrictions on accessing your money, and who is selling the investment product to you.  Invest from a position of knowledge, not fear.

As a brokerage commercial stated many years ago “… money doesn’t come with instructions…”  You don’t need to be a financial expert but you do need to be diligent about who you invest with and where your money is invested.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

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  1. Having a diversified portfolio is one of the best things you can do. I would additionally say that building a portfolio are your personal situation is key as well. For a couple getting ready to retire investing in safe large cap dividend stocks will provide safe and steady income. As you pointed out most investors do not understand the value or stocks and sell during market panics like they did in 2008 and 2009.

    • Roger Wohlner says

      Marvin thanks for your comment. In almost 15 years as an advisor if I’ve learned anything its exactly as you indicated that each investor needs a portfolio that fits their unique situation. This avoids the many sad situations that we saw in ’08-’09 when investors sold near the bottom, missed the recovery and essentially ruined their retirements.

  2. I hear what you saying. Several colleagues of mine had to postpone their retirement by as many as 4 years, since the crisis in 2008. They only going to do it now.
    On the other hand they goals has not changed, while they been working for extra 4 years..

    I think with your example it depends whether you can wait or not. If you can – it is always better to sit tight an wait. But not everybody can do it, if we could it – we would be remain in stocks and live off the dividends and pass the principal to our kids…

  3. Great post Roger. I’ve spoken to way too many people that lost their shirts in 08-09 and simply sold out at market bottom. I think a lot of people don’t understand how investing works and as a result choose to stay as a novice. Like you say, use some common sense and if you hire someone to do it for you, then hire someone who is credentialed, fee-only and is on the up and up.

    • Roger Wohlner says

      John thanks for your comment. Investing is in good measure about fear and greed. Sadly for many people in 2008-09 fear overcame reason and for many they have little hope of salvaging their retirement as a result.

  4. Ornella @ Moneylicious says

    Many investors are not aware you should have a custodian holding your money rather than the person who is giving you the “advice”

    • Roger Wohlner says

      Ornella I have no doubt that your comment is correct which is very scary to me. This was one of the main reasons that Madoff’s fraud was so effective and lasted so long. Had the market not corrected in ’08-’09 he would likely still be at it. The investing public needs to be educated about this, very critical.

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