Madoff about money!

Yesterday I commented about the fact that since pretty much everyone has lost money in the stock and bond markets this year, they really aren't blaming anyone in particular since it is such a widespread event. It's part of the herd mentality; do what everyone else does because if everyone else is doing it then I should too. This is why people buy at the top and sell at the bottom of the market cycles. Exactly the opposite of what they really should be doing. Most of my clients and those I read about in investment articles are avoiding the stock market right now because this year has been so terrible. But is that what they should be doing? If you have new money to invest, shouldn't you be putting it into the stock market and taking advantage of some great values and opportunities? Well, that depends. If you are in your 20's, 30's and even 40's, yes. But if you are in your 50's and 60's, you have to be more careful. A 30 to 40% decline in your portfolio will take a long time to make up. If you lost 50% of your account value, it will take a 100% return just to break even! But there is one person that people are blaming now for their losses, at least those rich folks and other unfortunate organizations that had money "invested" with one, Bernard L. Madoff. Mr. Madoff is a Wall Street tycoon who ran a popular hedge fund that appealed to the wealthy, the elite, the very well-to-do, and the erudite. We now know that he was basically running a "Ponzi" scheme, where the new money coming in from the last investors is used to pay the returns and distributions of the first investors. It worked well until this year's market crash caused more people that normal to request money back and there wasn't enough to go around. Apparently, Mr. Madoff was very clever and had duped the SEC and everyone who cared to read his fund's annual reports on investment performance and expenses. I would have liked to seen one of his prospectuses. Now most everyone should know that the market does not go up every single year. There are good years and bad, bull markets and bear markets, market gains and market corrections. But Mr. Madoff showed his clients reasonable gains of 8, 9, 10, and 11% returns EVERY single year! No one questioned his performance, they just keep giving him more money. Instead of looking for relative performance, they looked at absolute performance and now many of these once well off people have lost a big chunk of their fortunes. $50 Billion dollars has vanished into thin air! Have none of these people ever heard of diversification? Now they have learned a very painful and expensive lesson: if it's sounds too good to be true, it probably is!