Wednesday, February 18, 2009

Bernie Maddoff and Millionaire Madness

Sometime ago I heard the expression that "You only have to get rich once." In as much as I'm not rich, nor will I ever be close to it, this comment stuck in my mind. The appendage to that statement was that rich people can stay rich by putting the majority of their money into very safe investments such as double exempting municipal bonds, or U.S. Treasury notes. While I can feel some level of sympathy, but not too much, for the many millionaires who lost their money with Bernie Maddoff, I can only wonder why they were taking such high risks with their fortunes and so many ended up losing it all.

The only rich person I know has had all his money in double exempt municipal bonds for probably 20 years. Let's assume that he has $10 million, which he probably does. If you do the math, 5% (municipal) of $10 million is $500,000 a year. He seems to be squeezing out a marginal lifestyle with an apartment in Paris and a home outside of Denver. My goodness, it's possible to live on $500,000 a year. It boggles my mind to have that much money to spend a year. So what were all the millionaires who entrusted their money with Bernie Maddoff thinking? Oh yes, he had a wonderful reputation etc. but that's not the issue. If these millionaires had followed the basic rule of very conservative investing giving them a more than adequate income, then old Bernie wouldn't have been able to rob them blind.

We have been a nation of greed and are now paying for it. Our houses were never enough, our cars were never enough, and we never had enough goodies. These are tough times for so many of us. We have watched our investments for retirement dwindle. Many Americans have had to make tough decisions, some of them wrong, some of them right. But the vast majority of us weren't rich to begin with, and never had the opportunity to stay rich. What were all the millionaires thinking who invested their money with Bernie Maddoff? The answer is they weren't thinking

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