5 key lessons to take away from the Bernie Madoff scam

Chris Broome – Chartered Financial Planner

Bernie Madoff was best known for operating history’s largest Ponzi scheme, a financial swindle in which early investors are repaid with money acquired from later investors rather than from actual investment income.

Today’s short article highlights to key lessons an investor can learn.

Bernie Madoff - Ponzi

1.  Always do your due diligence

Investors should always thoroughly research any investment opportunity before handing over their money.

2.  Diversify your investments

Investing all of your money in one place, as many of Madoff’s victims did, is extremely risky. Diversifying your investments can help mitigate the impact of any potential losses.

3.  Be sceptical of consistent high returns

Madoff promised consistent high returns to his investors, but this should have been a red flag.

High returns often come with high risks, and investors should be wary of promises that sound too good to be true.

4.  Be aware of the risk of fraud

Unfortunately, fraud can happen to anyone. It is important to be aware of the potential for fraud and to be vigilant in protecting your investments.

5.  Understand the difference between ‘custodial’ and ‘advisory’ services

Madoff’s clients believed they were investing through a custodial account, where the custodian holds assets on behalf of the client, when in fact he was running an advisory account where he had full discretion over the assets.

In summary

Don’t judge a book by its cover. Or in this case personality. Never trust, always verify.

Everything should be fact-checked to make sure all financial aspects and inside functions are running properly.

If something seems too good to be true financially, usually it is.

Next steps

If you have any questions about any of the above, or wish to discuss your long-term financial plans with us, please get in touch. Contact us

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.