Posted: 13 Oct 2008 08:13 PM CDT
The New Paper article above tells the sad story of retirees losing S$250,000 of their life savings which were invested in structured products that were adversely affected by the credit event triggered by the failure of Lehman Brothers.
For some people affected, the financial credit crisis is real and the impact of what Nassim Nicholas Taleb describes as “a black swan“. A black swan refers to events that are highly improbable, has a huge impact and has retrospective predictability. In other words, when the financial institutions came up with the structured product such as Lehman Minibonds, High Notes, Pinnacle Notes etc, who would have thought that Lehman Brothers, a well known investment bank, could go bankrupt?
How not to lose your life savings
To avoid losing your life savings, you have to understand what you are investing in. Be very sceptical of all experts who wear ties (or high heels and skirt-suits). If you don’t understand what the investment is about with regards to the potential risks and returns, then don’t invest. Park your money in 3 month treasury bills that currently yields 1.27%which is much better than the pitiful 0.25% the banks are giving you for your savings deposits accounts.
The more sad stories that emerge from this debacle, the more it appears to point to systemic mis-selling or potential negligent misrepresentation on the part of the financial institutions and distributors of these products. In short, many grandpas and grandmas (and everyone else who bought such products) are being SCREWED by the financial institutions. If it were just a couple of thousands of dollars, it wouldn’t be so bad. But to lose $250,000 in life savings can have serious consequences.
Even as an accountant, I don’t understand structured products. I wonder if the distributors and the banks’ relationship managers understand the specifics of the products themselves? They probably understand even less than you or I because they have a vested interest to sell it unlike you or I who can walk away if we don’t understand what it is.
Read, read and read about personal finance and investments. There is no substitute for educating yourself because there are scams everywhere. Some scams are dressed up in legal contracts and well dressed tie or skirt-suit wearing professionals.
Be well and prosper.