SmartInMoney

 

 

 

There were some lessons that investors should learn from the Madoff scandal, who was allegedly masterminded a giant Ponzi scheme.

Many people and institutions tied up almost all of their assets with Madoff. While it's tempting to keep an asset that seems to be doing so well, it's important to diversify and regularly rebalance an investment portfolio. After all, it doesn't take a fraud to expose the failure of concentrating too many assets in one place. A significant market correction can have the same damaging effect.

Madoff kept the investment performance good and steady to avoid redemptions. Investors should be skeptical and double-check any investment record that looks good and too steady over the long term.

Madoff kicked people out his fund if they asked too many questions. Everything has to be out in the open; investment performances and updates have to be published regularly.

Madoff's books were audited by a virtually unknown accounting firm. A vital lesson here is never to invest in hedge fund, partnership, or mutual fund whose books aren't audited by a recognized accounting firm with a strong reputation and numerous clients. If you don't recognize the name of the firm that provides the audit, research it on the Internet.

Many Madoff investors were steered into their investments by advisers. Such middlemen have grown increasingly popular with the proliferation of hedge funds and other alternative investment opportunities. Many investors don't want to have to think about their investments and totally rely on the advisers, but you can't relinquish all responsibility. Don't blindly put your investment faith in advisers.