Investment Scams and How to Avoid Them

 Every week, it seems, a new story surfaces about a retiree whose golden years have been ruined by an investment scam. The stories are depressingly similar. They begin with people struggling to make ends meet. Then come telephone sales pitches, free-lunch seminars, friendly but pushy "advisors," and promises of high returns coupled with absolute safety. The stories inevitably end with huge losses and shattered lives.

Yet you have to invest your retirement nest egg somewhere. And you want to get the best possible return on your investment, both to have enough to live on, and to ensure that it won't be eaten up by withdrawals and inflation. How can you be sure that an investment "opportunity" isn't really a scam? Follow these six guidelines:

1. Stay away from strangers who solicit your business.

There are plenty of reputable mutual fund companies (e.g. Vanguard and Fidelity) that offer extensive online and offline resources to help prospective customers choose wisely among their many investment options. And there are plenty of well-known full-service brokerage firms that will manage your money for a fee (e.g. Merrill Lynch, Wells Fargo, Morgan Stanley). They're easy to find on the Internet or in the phone book. In any event, you're better off Refundee  out your own investment vehicles or investment advisor than waiting for someone to come to you. Anyone who cold-calls you or offers free seminars is suspect. Well-established, reputable firms don't do these things because they don't have to.

2. Remember that there is no "magical" solution

This is the most important guideline of all. You may look at the size of your nest egg, and at the amount of money you need to live on, and conclude that you need a 20% annual return. The unfortunate reality is that no such investment exists that isn't ridiculously risky--or an out-and-out fraud. And contrary to popular belief, even the experts can't consistently beat the historical averages of 10% or so per year for stocks and 5-7% for bonds. Yes, hedge fund managers sometimes manage to squeeze out an extra percent or two--but only at considerable risk.

3. Consider managing your own money through no-load mutual funds

Unless you're totally uncomfortable with numbers and percentages, you can put together your own retirement investment portfolio. Stick to the basics: a money-market fund for immediate cash needs; a short, intermediate, or Ginnie Mae bond fund for reliable income; and a broad-based index stock fund for growth. The only open question is asset allocation among these tried-and-true investment vehicles. The sooner you'll need the money, the more you should lean toward cash and bonds, and away from stocks. Use the major mutual fund companies' retirement planning guides. They're free, and trustworthy.