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You won’t believe it -- I just found out that I am about to receive
$2,700,000.00! My family and my kids shouldn’t ever have to worry
about money again! It’s not a result of my job, but of providence.
It almost seems too good to be true…
And it is. I opened up my email this morning to find that there was
someone needing my help to extricate money from Zimbabwe. All I have
to do is send $500 to help this poor fellow finish a business
transaction, and I’ll receive $2.7 million in return.
I laugh when I get these emails. I can’t imagine anyone falling for
this scam. Scams such as this play on our greed. All of us dream of
winning the lottery or having a rich uncle who leaves us a fortune.
We think we’re smart enough to recognize when something is a scam,
but are we really?
I’ve talked with literally thousands of investors over the 4 years
I’ve been writing this weekly column. Let me share just a few of the
stories where someone bought into something that was too good to be
true. You might be surprised to find you have, too.
I’ve been contacted twice by people believing they were about to
inherit millions of dollars as a result of an email like the one
mentioned above. In these cases, the email claimed a distant
relative’s estate had been left to them. In both situations, the
ones receiving the emails were in difficult circumstances. One was a
single mother. To both, this was their Ticket.
They were convinced that this was real. The desire for it to be true
was so strong that their judgment became clouded. As a result, they
were ready to take what little savings they had and hand it over to
a stranger.
Surely you’re smart enough to recognize an email scam. Even if
someone knew your name, how could they know your email address? But
there are a lot of other ways that our desire to get rich gets us
into trouble. We want to believe that there is some secret shortcut
to becoming wealthy.
I’ve talked to several people in financial difficulty because they
believed that they could take the equity out of their home, invest
it and make a quick buck. There’s the couple that borrowed all the
equity out of their home to buy a rental property. They only have
about $40,000 a year in income but the mortgage broker convinced
them that they could afford over $800,000 in mortgages.
In this case, a newer variant of a mortgage, called an Option-ARM,
was used. The mortgage had a teaser rate where the payment was based
on a 2% interest rate. They ‘trusted’ the mortgage broker so they
didn’t even bother to read the paperwork. The real estate market was
booming and they were going to hit the jackpot!
Little did they realize that each month they were going further into
debt. Their ‘teaser’ rate was short lived and their payments
suddenly increased. Their local real estate market tanked. Now they
are stuck with $470,000 invested in a rental home, mortgaged to the
hilt, when a similar new home is selling for $299,000.
How is that any different from people who believe that they should
take all of their home equity and invest it in life insurance so
they can ‘be their own banker’?
How is that any different from those who believe they have found the
‘perfect investment’, one that guarantees they can participate in
stock market profits without any risk?
How is that any different than the people who are buying variable
annuities thinking that they are guaranteed to earn 5-7% a year for
life?
These ‘perfect investments’ can make a lot of money. In fact they
all do…for the person selling them. The mortgage broker in the true
story above made tens of thousands of dollars.
Bottom line: there aren’t any secret ways to get rich. There aren’t
any ‘perfect investments’. As those ‘rich people’ have found, it
takes work---hard work---and time. It takes living beneath your
means. It takes batting for singles and doubles instead of home
runs. To avoid being a victim, the most important thing is to
realize your vulnerability and keep up your guard.
Nationally-syndicated financial columnist and Certified Financial
Planner® Jeffrey Voudrie provides personal, in-depth money
management services and advice to select private clients throughout
the USA. He’ll answer your financial question – FREE at
www.guardingyourwealth.com. |
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