Some Old Stuff - Basic Personal Finance

I changed jobs recently and have been going through some old files. Here is something that I wrote up a while ago, but never posted.

Basic Personal Finance

I just don’t get it. I was in shul a few weeks ago, and was talking to a gentleman who I would guess is in his mid sixties to early seventies. He lamented how he needs to adjust his retirement plans because he lost so much money in the recent downturn of the stock market. He doesn’t know what to do. His retirement nest-egg has decreased 50% as it was all in mutual funds that tanked.

In recent testimony before congress regarding the Madoff scandal, Allan Goldstein, age 76, explained that he lost his entire 50 years of retirement savings to Madoff. He can make his next two mortgage payments and will be broke.

I just don’t get it. Personal Finance 101 states that investors who will need their money in the short term should not be invested in equities, particularly in options. There was no question where Madoff was investing. He was investing in high risk securities. That was his niche. Everyone knew that from the start. Why would a retiree have all of his money invested in options? Why does my fellow congregant have so much money in stocks and stock mutual funds?

I guess I could understand if seniors, or almost seniors, had a small portion of their investments in these types of investments. Maybe 10 or 15 percent. But someone in or approaching their “golden years”, has little or no business investing in equities or options.

Here is another thing. From http://www.eliewieselfoundation.org:

“We are writing to inform you that the Elie Wiesel Foundation for Humanity had $15.2 million under management with Bernard Madoff Investment Securities. This represented substantially all of the Foundation's assets”.

Why on earth would a foundation invest all of its money with a hedge fund? Seriously, are these people just plain stupid. If you have a 15 million dollar endowment, how can you invest all of it in one hedge fund? It makes no sense. Is it greed, stupidity, or something else?

Yeshiva University lost a bunch of money with Madoff. However, it was a small portion of their endowment. I still don’t think that charity money should be invested in equities or options, but I can understand a small percent.

Why does this seem so obvious to me, but eludes so many people?