A great read I recommend is The Naked Investor, by John Lawrence Reynolds. It’s a must for every investor’s library. This book details real-life stories on the dark side of the investment world where unscrupulous advisors have taken advantage of the investor, for their own personal gain. It’s a tough read for any advisor and admittedly does not leave me feeling really good about the industry. Hopefully though, this article will give you the impetuous to read this book, so that you can recognize the signs, if something just doesn’t smell right. Investment education is paramount and this book is a great start. Remember it is your money after all.
Here’s a summary of tips from the chapter entitled, “Vulture, Jackals, Ghouls”.
If it sounds too good to be true, it probably is. This may seem obvious but many fall victim to the promise of outlandishly high rates of return with little of no risk. Sorry, it can’t be done. Beware!
Do Not Be Overly Impressed with First Impressions. Advisors and brokers, who look wealthy from the outside, may in fact be just the opposite. Do not be fooled by large homes, fancy cars that these people may display. Some of the biggest rip-off artists covered in this book looked extremely successful from the outside looking in.
If “You Have to Act Now”- Don’t. Never let anyone rush you into making a hurried decision. Sleep on it and give it some thought.
Don’t Trust The Internet. While it’s a great source for information, be sure to check things out thoroughly. In the book, the author points out that the Ontario Securities Commission ( http://www.osc.gov.on.ca/ ) put up a fictitious website just to alert investors of the dangers of investing blindly. The website promised returns over 30% and some people were so interested that they were offering to invest $50,000 or more without further information.
Never Invest in Something You Don’t Understand. You don’t have to be an investment guru, but if you don’t understand the strategy being presented, don’t be afraid to say so.
In the last chapter, “Looking Out for Yourself and Your Money”, the author points out a website by the Small Investor Protection Association. (http://www.sipa.ca ). Their mission is as follows.
1. to aid public awareness of how the investment industry operates;
2. to provide guidance to those who have a complaint about investments with a bank, broker, financial advisor, or other seller of financial products;
3. and to pursue improvement of industry regulation and enforcement.
And yes, it was started by an investor who got duped. It’s also worth a look.
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