Posted in: Ponzi Schemes | S&P 500 | Risky Investments |
Unfortunately, many victims of investment fraud do not report their brokers who are at fault, nor do they seek arbitration or proper legal advice. Some of those investors blame themselves when portfolios fail, or feel embarrassed after being bilked out of their investment.
Overall market performance can also deceive investors, even those who have been especially deceived into buying securities that are simply not suited for them.
The Standard & Poor’s 500-stock index has climbed more than 24 percent in 2009, as opposed to a 37 percent drop last year. But as Paul J. Lim perfectly illustrates in his New York Times article, many individual investors “missed out on a decent percentage of this year’s rebound.”
Why? The typical investor does not have the required patience and expertise to survive the market’s swift ups-and-downs. If investors make mistakes buying and selling at small, crucial points during the year, it can dramatically affect their portfolio’s annual performance as a whole.
This year’s market returns provide a perfect example, according to Lim:
From March 9, when the rally began, to Dec. 17, the S.& P. advanced nearly 65 percent. But if you sold out of your stocks during the 2008 downturn and came back into the market less than a month after the rally started - say, on April 1 - you would have earned a 37 percent return.
In other words, you would have missed out on 40 percent of your potential gains.
And if you were two months late in timing the rebound and came back into the market on May 1, you would have missed out on almost 60 percent of your potential gains for 2009.
The reality is that many investors did wait too long - because they read too much into past market performance, says Stuart L. Ritter, a financial planner at T. Rowe Price in Baltimore.
Not only are market fluctuations - including rebounds - unexpected to the average investor; they can happen so quick that they are easy to miss, Lim says.
A similar problem also occurs in individual fund performances. The JPMorgan Intrepid Multicap Fund, according to the article, has returned 28.2 percent in the past 12 months- which even beats broad market returns. But the average investor in that fund earned just 8.1 percent over the same 12 months.
Clearly, it is a mistake to look at market returns when deciding whether a broker has been dishonest, since those returns fail to even indicate how typical investors fared.
Even if an investor has positive returns, his or her broker could still be churning the account for unnecessary commission fees. High market returns also allow Ponzi schemers like Bernie Madoff and Mark Sanford to blend end in, with their unrealistically high returns propped up for customers.
If investors took losses in 2009 as the result of broker fraud, the market conditions would make it seem that their problems are unique—when in reality, they probably are not.
If you suspect your broker may have negatively influenced the returns of your investments - regardless of how you fared in 2009 - it is worth a second look. Do not hesitate to hire an attorney who can bring the truth to light, and help you exercise your rights as an investor.
