The Law of Unintended Consequences (Part 4)

So what’s going to happen to the average investor?

With rates so low for so long, people have are motivated to find ways to create income from their investment principal. And there are people out there ready to exploit this situation for their personal benefit.

Savers are getting flyers addressed “ATTENTION CD OWNERS” promising 5, 6, or 7% returns with principal and interest guaranteed. There’s a lot of ways for scam artists to play this. The interest might apply to just the first $500 of a $35,000 product; or it might pay a teaser rate for only the first month of a two-year period; or the guarantee might cover one tenth of the principal; and so on. The qualifications are buried in the fine print, but the liars can claim that they disclosed the limitations in writing.

Structured products are another way to fleece savers. They generate big commissions for the seller, and they might have a legitimate guarantee from an insurance company, but the money is locked away for up to 20 years with huge surrender charges against early withdrawal.

And then there are garden-variety Ponzi schemes: the Bernie Madoff version, where investments are never made and statements are fabricated; or the Alan Stanford approach where the CD is from a foreign bank with no deposit insurance. These are just outright theft.

So a side-effect of low rates is an increased in financial fraud. Don’t be a victim! If it sounds too good to be true, it probably is.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By | 2017-07-17T12:34:46+00:00 September 27th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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