The Financial Post profiled six of the estimated 1,600 retail investors whose savings were frozen when the asset-backed commercial paper market froze last summer. These retail investors have hundreds of thousands of dollars, often their life savings, tied up in paper they can’t sell anymore. The rest of us learn some valuable lessons from the unfortunate investors who invested in ABC paper:
- There is no such thing as a free lunch. If a broker claims that a better return than t-bills can be had with no risk, it’s time to fire her on the spot. No offence to Royal Bank of Scotland or Barclays Bank but they are not the same as a guarantee by the Government of Canada. Money that cannot absolutely be risked belongs in t-bills or high-interest savings accounts covered by CDIC.
- Know what you own: All the investors profiled in the story invested through a broker but it is mind-boggling that many didn’t seem to check how the broker actually invested the money. Financial institutions send transaction confirmations, monthly statements etc. and a cursory glance would have indicated that a big chunk is invested in unfamiliar products.
- Get a Good Adviser: The story is not a good advertisement for brokers. Three of the six investors say they specifically instructed the broker that they want secure investments or government bonds and the other three were told that they could get a higher return with a “safe” investment. Here’s the irony though: To tell a good adviser apart, you need at least a basic grounding in investing but if you have a good idea of investing, you probably don’t need an investment adviser.