I know I'm not the only Fool who enjoys watching the financial television series American Greed on CNBC. The show explores various accounts of financial fraud and theft, from the infamous Enron and Bernie Madoff fiascoes to lesser-known cases of arrogance and greed. Most episodes detail how savvy, opportunistic criminals take advantage of investors who let their guard down.
In the franchise's seven seasons, individuals of all backgrounds, education levels, and financial literacy levels are equally susceptible to playing right into the hands of various schemes. That is fascinating -- and scary. Therefore, I thought it would be a good experiment to discuss several things I have learned from my favorite television series. Here are four Foolish tips staring back at you through your television screen.
1. If it sounds too good to be true, it isn't true.
Just about every episode sees investors plant the seeds of financial ruin by chasing yields that seem too good to be true. What's more, after testing the waters with an initial investment, some individuals liquidate their entire life savings once detailed financial statements show unbelievable unrealized returns. Individuals can even receive legitimate checks from their "earnings."
Unfortunately, the music stops for all Ponzi schemes eventually. And guess who is left holding the bag?
Simply put, don't trust someone who tells you they can guarantee sky-high returns. If it were that easy, everyone would do it. Your best option is to keep a long-term, buy-and-hold investment strategy. As fellow Fool Morgan Housel wrote not too long ago, patient investors always win.
2. Stay the course.
What's more troubling than chasing unreasonable yields? When you do it after decades of Foolish investing. I cringe when an episode features an individual close to or in retirement who had done everything right until they decided to chase a home run. Three singles are just as good.
You don't want the biggest inflection point of your financial life to occur in retirement, especially when the magnitude and direction lead you to mountains of red ink. If you find an investment strategy makes you comfortable and allows you to live the life you desire, then the best thing you can change is nothing at all.
3. Beware of the Neighbor Effect.
The Neighbor Effect can be particularly devastating to individual investors. A friend, family member, or neighbor approaches you, tells you about a great investment they made that crushes the market, and suddenly you want in. It's natural to want to help loved ones enjoy the same success we enjoy. Conversely, we tend to want to enjoy the same successes as those around us.
If your neighbor Walter's savings are returning 100% per month, why should your investments fair any worse? You trust him. (Besides, Walter still hasn't returned your hedge trimmers that he borrowed last summer.)
Again, if something sounds too good to be true and strays from an investment strategy that works for you, it is important -- but difficult -- not to let your guard down because of the Neighbor Effect. Let Walter swing for the fences. If it works out in the end (it probably won't), who cares? You will still be able to be in the driver's seat for your financial future.
4. Become an individual investor.
There is absolutely nothing wrong with getting advice from a financial planner. However, you should always do your research when giving another individual or capital investment firm free rein over your hard-earned savings. Of course, successful fraudsters are often great at keeping up appearances, so it can be easy for even the most diligent investors to get duped. The remedy?
Learn to invest your own money. The Motley Fool believes that individuals of all backgrounds can become successful investors. It may take years -- or even a lifetime -- but our Foolish community is proof that you, too, can hone the skills necessary to take control of your financial future. Check out our "13 Steps to Investing Foolishly" if you aren't sure where to start or want to ensure you are on your way to a comfortable financial lifestyle.
Foolish bottom line
I didn't say it was easy, but investing Foolishly is the best way to secure your retirement and dictate how you live your life. The market will go up, down, and sideways in your investing life -- and that is just fine. Stay focused, don't be lured in by Walter's investment success (but do get your hedge trimmer back), and you will come out on top. Meanwhile, as a new season of American Greed starts up, I'll be back in front of the TV trying to learn more lessons.
Check out Maxx Chatsko's personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.