A Simple Lesson in Investment Education

A girlfriend would never steer you wrong, would she? And in these troubling economic times, you want to be extra careful with your financial resources, so you need to work with people you trust, right? Well, trusting a girlfriend to be your financial coach, no matter how successful she may seem, can come around to bite you.

Even in these days when Bernie Madoff and his ilk make the news, it’s amazing to find how trusting people continue to be with their investments. Women in particularly can be susceptible. We tend to look to others for advice, share ideas and plans, and place a high value on information received from those we have faith in. These traits have made women the target of a number of financial scams.

One such scam illustrates the perfidy and inventiveness of those who would bilk you of your money. On the surface, it didn’t even look like an investment strategy, but rather was disguised as charitable do-gooding. Known as a “women’s circle,” it was in actuality a financial pyramid. And of course, in a pyramid, the only good place to be is at the top. How did it work? Say you’re a successful professional woman. A friend invites you to join a charity-minded group, formed to promote and empower women in need. You give $5000 to a particular woman in need and then spread the word to more of your friends. You, and the friend who invited you, are probably acting under the best of intentions. But if you’re not versed in investment education, it’s easy for the rhetoric and peer pressure to cloud your judgment. Under the guise of sisterhood, the circle is designed to grow, and soon, you will be the designated “woman in need,” receiving $40,000. When explained so simply, it’s pretty clear that the math doesn’t work unless the pyramid can add an endless base of support. Yet in Dallas a few years ago, a number of talented, educated women were drawn into becoming “gifters” in such a circle. This continued until a newspaper story about such scams was printed. A pair of friends in the women’s circle realized their group of gifters fit the description, and the friends finally blew the whistle on the scheme.

The moral of the story is this: trust your girlfriends to join you in laughter and provide a shoulder for tears, but trust your investments to a professional.