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Plan Well, Retire Well

Saving and investing your money

Madoff Investment Fraud: Could it happen to you?

Ponzi schemes. We've heard of them before. To me, it sounded like an old idea, something that probably wasn't used much anymore. But Bernard Madoff has shown us that the Ponzi scheme is alive and well, and on a scale that is almost unimaginable.

The current economic situation is what finally brought Madoff's house of card to light. But it may also give rise to even more investment scams, as people urgently look for ways to preserve their savings and earn more than the paltry interest rates available on standard money market accounts and CDs today.

It couldn't happen to you, you're too smart, right? Well, fear and greed are a perfect prescription for being taken advantage of. You're probably worried about your money right now, and yes, you're probably greedy. That's not a comfortable label for most of us to wear, but that's what it is when you are willing to listen to someone who promises 10% yields when everyone else is paying 2 or 3%.

The National Association of Personal Financial Advisors has issued an informative news release about how to monitor your financial advisor, including what to look for in the statements and communications you get about your investments.

University of Illinois Extension also has two websites that can help you avoid investment scams. Choosing a Financial Professional will walk you through the distinctions between different types of advisers (for example, a broker versus an investment advisor), explain the various credentials they may hold, and gives you suggested questions for interviewing candidates.

A second webpage you'll want to visit is the Investment Scams section of our Plan Well, Retire Well, website (anonymous registration required). We wrote this section months ago, but the parallels between the real-life Affinity Fraud that we describe and the Madoff scam are eerily similar. Read it and see what you think.

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