I find it funny that nearly every time that I read a story in the Wall Street Journal about the collapse of a hedge fund or a story about fraud, the words “sophisticated investor” are used to describe those who were swindled or those who lost it all.
Is “sophisticated investor” the new term for “ignorant investor?”
The latest case involved outright fraud. This super-secretive investment advisor presided over the biggest Ponzi scheme ever. Estimates are that Bernard Madoff lost $50 BILLION of investor money. He was paying investment returns of approximately 1% per month to his current investors with money collected from new investors. This 1% monthly return was delivered consistently month in and month out, no matter what the market was doing. RED FLAG!
Why is it that those who are considered rich always think they have to use some sort of “sophisticated” investment strategy? What’s wrong with them using low cost index funds like the rest of us use?
My advice: the next time you hear an investment advisor say something like, “This is a rather sophisticated investment strategy…,” RUN FOR THE DOOR!
For more information on the Madoff Fraudster, see:
Banks Shrug Off Madoff – Forbes