We’ve put together a guide of things to consider before giving your money to someone else to manage. The guide won’t be 100% foolproof, but if the basics are ticked off it should go a long way to help you preserve your capital.
Read more below or download a pdf version.
It is a deeply sickening experience to wake up and find one or more of your investments has evaporated into thin air – whether it’s down to the latest sure-fire thing, property trusts, finance companies, special partnerships, or seductive advisers and brilliant embezzling investment gurus. What’s astounding is the number of people who have faced this experience more than once.
We’ve put together a few reminders we think investors should consider before handing over their savings to someone else to look after. Please note our suggestions come with a health warning:
This guide is not intended to be 100% foolproof, but if the basics are ticked off it will go a long way to help you preserve your capital. Simply put, if you can’t be bothered investigating whether the manager of your money is worthy of your trust, then you run the risk of losing the lot!
No one is deserving of blind trust so don’t just accept what you are told, ask to see the evidence. It’s not enough to be told that such and such happens – you need to verify it yourself and the first step in the process is getting supporting documentation that you can follow up. Read everything that gets put in front of you, and if there’s not much to work with, well, that could be a sign in itself. Investors have every right to ask questions and get answers. When it comes to your money, no question is too dumb. You should keep probing until you are satisfied you understand how your money will be managed and invested and the safeguards you can rely on. If anyone tries to divert you from finding something out or speaking to someone, then it’s a large red flag – run for your life.
It’s an old cliché, but it works. Trust your instincts on this one and don’t be blinded by the fact that everyone else you know has jumped on the bandwagon. Be especially wary if:
Preserving your wealth is far more about understanding and managing risk than chasing returns, so if you don’t understand the risks involved in achieving the returns take extra care when doing your due diligence.
Better securities regulation and so-called enforcement is no guarantee. It hasn’t stopped fraud in the past and it won’t in the future. In the 2008 Madoff case (US$50bn of fraud and the biggest Ponzi scheme the world has seen to date), Madoff was regulated by the venerable Securities & Exchange Commission… they failed to see a number of red flags fully eight years before his fraud came to an end. Don’t expect a regulatory authority in New Zealand to be any different.
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