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  • The lesson everyone should learn from Bernie Madoff: Diversify

    The one thing I haven’t been able to understand about all the losses caused by Bernie Madoff is why so many people had everything invested with him. A few months ago, I read an LA Times article about Nancy Silverton, a well-known pastry chef, in which Silverton admitted that she knew she ought to diversify, but the returns with Madoff were so good that she kept putting it off. Maybe that’s all it was – greed.

    The need for diversification came back when I read that a mortgage broker in Hawaii ran a Ponzi scheme that lost $30 million, and his victims appeared in court to say they’d lost everything. Again, it sounds like the investors were simply lured by the prospect of easy money.

    For me, between the Ponzi schemes and the current recession, I’ve learned that I don’t want to trust one entity with all of my money. I already felt that way anyway, but the feeling has been reinforced. Our cash holdings are spread between three banks, and our retirement funds are with three separate institutions. It’s not that I think anything will happen to any of these financial entities, but I’ve always been cautious and now I’m extra cautious when it comes to trusting anyone with my money.

    Certainly, for all of the Ponzi scheme investors, losing even half of their life savings would have been devastating. But at least there’d be something left if they’d diversified.


    1. This is the great lesson of Madoff. I even keep retirement accounts separated between Vanguard and Fidelity. One would never expect either institution to go the path of Madoff, and there is some level of insurance if they did, but why take chances with your money and your future? Nice post.