It probably is!
I am reminded of a client of mine back in 2006 whom we shall call Paul and his second wife Mary. Paul came into an inheritance of almost $1.5M during that time.
Due to the fact that Paul was getting hit with investment opportunities from all sides, I prepared a proposal for him to allow me to manage his assets conservatively across a diversified mix of stocks, bonds, cash and other alternative assets, based on the fact that Paul was getting close to retirement.
Meanwhile, Paul was introduced to Steve who offered a hot real estate development deal and promised Paul a consistently high return with his own condo unit once construction was complete.
Steve was so confident with this deal that he offered Paul his house as a guarantee. Needless to say that Paul decided to invest most of his inherited money with Steve, against my advice of course. As a consolation, Paul allowed me to manage a small portion of his inheritance and his wife Mary’s retirement funds (wooptidoo!)
In 2008, the real estate market, stock market and every conceivable market collapsed. It didn’t matter what you were invested in… Everything was down! Fortunately, my gut instinct prompted me to advise most of my clients to move into cash around September of 2008 (a few weeks prior to the crash).
I also guided them back into the market at increments of 5% – 10% of their portfolio (aka dollar cost averaging) starting February of 2009. But I digress, so much for patting myself on the back for doing my job =).
Meanwhile, Paul lost his shirt in his real estate deal with Steve. Long story short, last I heard about Steve is that he was in jail. Apparently, Paul was not the only investor Steve promised his house to. They lost everything!
Anyway, Paul came to me with his tail between his legs soon after. I later find out that Paul didn’t only NOT listen to me about Steve, but he also ended up borrowing money against his house to get into a dry cleaning business that was offered to him by another friend (not anymore), Peter, who literally took him to the cleaners.
I remember Paul admitting to me that out of all the investments he made, the one he had with me was the only one left standing, although we already took a hit by then. In the same breath, Paul asked if he could withdraw what remained of his account as he had to pay off debts from his bad investments. Of course there was nothing I can do to recoup his losses at this point.
Today, Mary’s (Paul’s wife) retirement account has doubled while Paul doesn’t see retirement as an option in his future.
Like the tip of my index finger, there is a point to this story… The real estate deal Paul was offered was something tangible compared to what I had proposed. He did not pay attention to the risks involved as he was blinded by greed from the high returns he was being offered, which were precariously “guaranteed.”
Worst of all, Paul did not do his homework and perform his due diligence prior sinking majority of his inheritance into it. Yet it all sounded too good to be true.
In my next article, I will go over some costly investment mistakes to help you avoid making wrong investment decisions.
Joel Barretto, CFP sold his financial planning practice in Irvine, California U.S.A. to promote financial literacy and awareness in the Philippines. He is a respected Certified Financial Planner practitioner with over 24 years of experience in helping people optimize, manage and protect their wealth.
He is a public speaker and lecturer on a variety of financial planning issues and strategies. With a passion for entrepreneurship, Joel dabbles in venture capital projects and mentors up and coming entrepreneurs on growing their start-up companies. He is a 2nd degree black belt in the martial art of Kempo and enjoys performing and directing stage musicals for community fund raisers.
You can reach Joel at firstname.lastname@example.org.