Bernie Madoff will go down in history as the architect of America's biggest Ponzi scheme, and it turns out his vaunted position provides a great vantage point from which to view the investment world as a whole. In an interview with MarketWatch, he shares some interesting and empowering bits of wisdom for the rest of us.
Here's a look at what this legendary criminal has to say about successful investing.
If you don't know what to do, use index funds
"The best chance for the average investor is to put money in an index fund. There are lower commission rates and more professional management... it's the safest and least likely place to get scammed."
Madoff underscores one of those old yarns of general investing advice: For best results, don't go with fancy mutual funds or high-fee managed accounts. Expensive funds raise the bar for outperformance and eat away at your returns over time. Even that extra 0.5% per year can destroy wealth over the decades -- and in years when markets and your funds are down, high fees only compound the problem.
Index funds, on the other hand, are cheap, simple, and very difficult to manipulate.
At the same time, don't underestimate your own intelligence
"Wall Street is not that complicated... If you don't understand the investment, don't put your money there."
Madoff explains that despite his caginess about his investment strategy, people still wanted to entrust him with their money. He almost seems baffled by this, saying that his investors were sophisticated people overall. In reality, nothing is so complex that it defies understanding. This is investing, not quantum physics. So, if it doesn't make sense, don't put your money in. Which leads to his next point:
"If it sounds too good to be true, it is."
Trust your gut: Madoff was able to ride on a wave of credibility by generating consistent -- but not completely crazy -- returns for a number of years. Unfortunately, that credibility was built on a black box that no one could look into. The wise or suspicious stayed away, but the gullible (or simply hopeful) couldn't resist. It was, in the end, too good to be true.
Bolster your intelligence with research
To avoid making the mistake Madoff's clients made (or one of the many less obvious mistakes many investors make every day), it's imperative to educate yourself. Madoff says:
Read good books. You have to educate yourself on the market. People are very gullible. Scamming investors has been going on since the beginning of time, and I don't think it's going to end.
He goes on to say that, in the absence of a willingness to learn about the market, investors should at least put their money with a qualified registered advisor so that there is some accountability for the advice they receive.
In general, the more you understand about how markets and investing work, the more ability you'll have to analyze investment opportunities for yourself and take claims with grain of salt. You'll also be more likely to see through a "foolproof" investment strategy or an overly expensive product.
In all walks of life, the importance of education -- whether through books, experience, or both -- cannot be underestimated. The same holds true for investing.
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.