Friday, June 11, 2004

Why I Manage My Own Money

Money Manager Sought in L.A. Scam - The U.S. says Won Charlie Yi defrauded Korean immigrants of at least $36 million (link requires registration; remember to lie).
If you read the article, this crook's method is pretty standard: he promised investors ridiculously large returns with low risk because he had an "inside" deal on purchasing discounted stock. Once investors were in, he would send them statements showing huge growth in their accounts. As these things usually go, the thing fell apart when investors tried to cash in, at which point he promptly fled the country.

Now, for every crook stealing investors' money there are 1000 hard working professionals trying to make their clients a buck. I even have several relatives that work in professional money management, but the fact of the matter is that no one is going to treat your money like its their own unless they think it is their own. And since few of us can afford to lose our life savings and start over, I manage my own money.

I probably have an advantage over the average person on the street since, thanks to my MBA, I understand portfolio theory (CAPM), bond pricing (duration, etc.), options pricing (Black-Scholes), and other details of the capital markets.

But the truth is that the average investor has modest assets which aren't that hard to manage, and putting them to work doesn't require an MBA: put aside money each month, stay out of debt, balance your portfolio between cash, stocks and bonds. This isn't rocket science, so I am always surprised when I read articles like this where people hand over their life savings to someone they hardly know.

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