In my fifth-grade mind, my teacher, Mr. James M. Migaki, was the smartest man to ever have lived. Every day was special in Mr. Migaki's class. He taught us the importance of learning from history so we never repeat its mistakes. That lesson became very real when he said that every moment counts as history, whether it was five years ago, last year, last month or last week.
Mr. Migaki said something is only a mistake if you can't fix it. Sometimes he would let us retake our tests to learn from history and fix our mistakes.
Speaking of learning lessons from past events, what can we learn from that Bernie Madoff character? He's the guy who pulled off a $50 billion Ponzi scheme by ripping people off for decades, claiming to be investing their fortunes, paying them inexplicable returns on their money and all the while stealing from them blind. There are several important lessons we all need to learn from this bit of history. These are my top five:
Number 1: Know what you own. No matter what type of assets or investments you have, make it your business to know exactly where your money is. If your fund manager or broker cannot give you an explanation you can understand, that is not necessarily a reflection on you; it could be that person is more unsure than you are. Keep asking questions, keep researching and keep digging, and don't stop until you are able to describe each of your assets and investments in 25 words or less.
Number 2: Know who's managing the store. Madoff's clients were too trusting when they handed their money over to this mysterious stranger. I can imagine that the mystery surrounding the old gent gave some of them some kind of weird confidence. That was dumb.
Number 3: Don't fall for unbelievable deals. Remember the old adage: If it's too good to be true, you can bet that it is. Get rid of your lottery mentality. There are no get-rich-quick deals out there. If you think you see one, figure out what it really is; then run.
Number 4: Trust, but verify. I don't know what kind of annual accounting documents and records Madoff's clients received, but now we know that whatever they may have received was all fake. A moderate effort on his clients' behalf to verify their tax returns would have probably shown the truth.
Number 5: Don't assume someone else will protect you. There's no doubt the Madoff crowd assumed they had some kind of protection against being stung by a scoundrel. After all, most securities professionals and others carry insurance to cover clients in the event of an embezzlement scandal. Apparently, the unsuspecting investors in the Madoff scheme never thought to ask about insurance. Whether you think you're protected or not, speak up. Ask questions, even if you think you might appear dumb.
Perhaps the best thing we can learn from the Madoff caper is this: Dumb questions are a lot better than dumb mistakes.
Mary invites questions, comments and tips at [email protected], or c/o Everyday Cheapskate, 12340 Seal Beach Blvd., Suite B-416, Seal Beach, CA 90740. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website and the author of "Debt-Proof Living," released in 2014. To find out more about Mary and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.