It Probably is to Good to be True

How much time did you spend learning about your new digital camera? You know, that 150 page manual that was enclosed in the box.  Then there was your plasma TV that came with a 30 page 8×10 manual.  I know you read the part on set up and then filed it away in a place you will never remember.  Finally there is the 140 page Franklin Templeton Investments prospectus they send out annually to all holders of their funds.  You probably didn’t even open that booklet that is far more important than the digital camera and TV operating guides.

The people who gave their money to Bernard Madoff or Allen Stanford for investment wanted to believe that it was safe and would grow faster than most other investments.  Apparently they did not do the “due diligence” that everyone should.  They simply had faith.  They did not want to read the manual.

We talk to someone for 30 minutes and decide, based on that short discussion, to rely on an “investment counselor”, “financial advisor”, or “financial planner” to invest our hard earned savings in a way that will provide growth and protection.  I especially like the TV ad where you see the outside of an office where someone inside has stopped in, on the way to work, to get vocal reassurances that he should focus on his long term goals and not be worried that his portfolio is tanking.

I look in the Franklin Templeton Investments prospectus (printed copy, the on-line version is 11 months old) and find the following statement under the title Temporary Investments:

“When a manager believes market or economic conditions are unfavorable to investors, the manager may invest up to 100% of the funds assets in a temporary defensive manner by holding all or a substantial portion of its assets in cash, cash equivalents, or other high quality short term investments. …”

Did you understand that?  Although I have limited knowledge on investing I do know enough to look at the performance of this investment during the recent market collapse.  I see a 52 week high of 7.14, a low of 5.92, and a current value of 6.51.  OK, I am not happy but given the market situation the manager of this investment isn’t doing too badly.  If he had made a mess of things I would dump this investment FAST.

What’s the idea I am conveying?  Do your own investing.  Do not rely on others.  Don’t rely on words like “don’t panic” and “focus on your goals.”  This is a bear market.  You are trying to ensure your investments are safe.  Remember, “If it seems too good to be true, it probably is.”