In most marriages, there's one partner who pays the bills and invests and another who doesn't. So, what do you do when our money becomes your money and you have never even looked at a brokerage statement?
In the event that your divorce leaves you flush with funds, you will find all kinds of new "friends" crawling out from the woodwork to help you out. Whether your new money comes from a divorce or a lottery ticket, this is a very, very vulnerable time because scam artists prey on the financially illiterate nouveau riche. Salesmen use everything from friendship and authority, to fear and intimidation, to limited availability to win your confidence and take your dough, which means that your first job is to learn how to grade your guru before you commit to any financial partner.
So, if you get a call out of the blue from your ex's money manager talking you up about how much she has always respected your strength and wisdom and wanted to warn you about your ex's wild investing habits, beware! Likewise, there may be strangers who have targeted you by reading the divorce section in the local paper and have found your phone number online. And then there are those who show up on TV and/or grace the stage of your favorite church or book author.
Last month, Harold Camping, the president of Family Radio tried to convince everyone that the world would end on May 21, 2011. He wasted millions of congregation dollars to publicize this non-event. How many were divorcees and widow(er)s who desperately wanted to believe and handed over money that could have been invested more wisely?
Stock and options pundits make wild predictions, and then offer to sale you the solution. In fall of 1999, Harry S. Dent predicted the "greatest boom in history" and that the Dow Jones Industrial Average would hit "at least 21,500 and likely higher." Just a few months after his book The Roaring 2000s was released, the Dot Com Recession kicked in and NASDAQ lost 75% of its value.
In 2009, Dent's newest prophecy became that America was in a Great Depression. The year that The Great Depression Ahead was released, NASDAQ posted 40 percent gains. The Dow Jones Industrial Average has almost fully recovered its losses. Investors following Dent's advice and buying into Dent's newsletters, advisor network and Exchange Traded Funds would have been wiped out, yet he still appears on the stages of mega-marketers who take a percentage of the sales he generates.
One of my readers recently asked me about a guru who had been sued by the SEC for securities fraud a few years ago. Then, the stock newsletter publisher claimed that his subscribers could "double [their] money on May 22nd on this super insider tip." Now, the same expert claims to offer excellent gains through shorting stocks, using investor fear and disgust to manipulate emotions and secure the sale of his high-priced products.
Whether it is a doomsday prophet, or a cheerleader tossing out candy with his data, or a mutual fund salesman warning you not to do surgery on yourself, your first move isn't to listen and learn. It is to grade the guru, to determine if s/he is worthy of listening to at all. And the most important degree isn't earned at Harvard. It is a PhD in results.
Having an Ivy League MBA or a big job sounds impressive, but that doesn't mean the strategies you are being sold actually work. Harry Dent has a Harvard MBA. Bernie Madoff was the non-executive chairman of the NASDAQ stock market. Dr. Myron Scholes won a Nobel Prize for writing his options theory, and yet his hedge fund Long-Term Capital Management went bankrupt. Former Secretary of the Treasury Hank Paulsen, who oversaw the biggest bailout in the history of the United States, was the Chairman of Goldman Sachs when all of the toxic financial products were brewing.
And the most important testimonials aren't those you hear in an infomercial or see in a television program or witness in a 3-day investor conference. James Arthur Ray would be an extreme, and tragic, example of a high-profile wealth guru, who is struggling to save his freedom and assets, while he is on trial for charges of manslaughter. If someone is on the stage at a conference, that person is almost always paying the promoter to be on that stage, and/or giving a commission on any sales.
So what does a PhD in results look like? A solid track record of outperforming the general marketplace for more than seven years is a great sign. An extraordinary track record for a year or two is a red flag.
A great guru will be proud to share her results easily when you request them. A Madoff clone will refuse to be transparent about how profits are achieved, using the same tactics of any scam artist -- friendship, authority, fear, intimidation, "act now or lose out" and scarcity - to win the sale.
Now that you've been through a divorce, you probably remember all of the warning signs you had about the relationship before you married. And, since your financial partner is the second most important long-term relationship you'll have, it is important to interview your financial partner candidates as if your life depends upon it. Because your lifestyle does.
For a list of 12 questions that you should ask any financial partner candidate, read "Brokers are Salespersons, Not Surgeons," from my book You Vs. Wall Street.
About Natalie Pace:
Natalie Pace is the author of You Vs Wall Street. She is a repeat guest on Fox News, CNBC, ABC-TV and a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on Facebook.com/NWPace and on YouTube.com/NataliePaceDOTCOM. For more information please visit NataliePace.com.
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