Let’s
go back in time 10 years and look at 2 typical investors, Jack and
Jill. Both are in the same tax bracket, have worked hard and saved a
lot of money, $250,000 . It’s their life savings. Everyone says they
should put their money in the market, where it will grow and fund their
retirement. So they did.
One thought they got the break of a lifetime and through a friend was able to invest with the one and only Bernie Madoff. The
other put half their money, $125k, in a mutual fund that matched the
performance of the Dow Jones, and half in a mutual fund that matched
the performance of the Nasdaq.
Neither touched the money other than to cover the fees and any
taxes, which for the sake of this example we will say were the same for
both.
Who has more money today ? The person who invested “wisely” or the person who invested with a crooked Ponzi Scheme ?
The mutual fund investor bought their Dow Jones Fund when the market
was 9550 in Feb of 1999. That $125k investment has shrunk to about
$95k. They bought the Nasdaq Fund when the index was at 2342. Today
that $125k would be worth about $77k. Their $250k nest egg of
February 1999 is now worth $172,000. That’s bad, but not as bad as
Madoff’s sucker, right ?
Maybe not. Because the Madoff investor had less than $500k invested, there is a good chance that they could be protected by the SIPC, who is already sending out claim forms.
So when its all said and done, the Madoff investor could not only get
all their $250k back, but they are also eligible for a share of any
funds recovered. While that number may be minuscule, it could mean that
SIPC eligible and paid Madoff investors actually made money over the 10
year period, while those that put their money in the market got hit
very hard.
The sad thing is, that the same comparison could be made for many blue chip stocks that are down 50, 60, even 90% or more.
Which begs the question, who suffered more stress along the way ?
The market investor who has had to endure 10 years of ups and downs and
ups and way down in the market, or the Madoff Ponzi investor who lived
happily and stress free for nine plus years and must now face the
uncertainty of their SIPC and other claims to get their money back?
(Image source courtsey Huffington Post)
