As if we needed any more reminders that when someone offers you “improbable, if not impossible” investment returns, you should run the other way, we now have the SEC complaint (PDF) against R. Allen Stanford for allegedly defrauding investors by telling them that their certificates of deposit were invested in safe, highly liquid securities when, in fact, the money was largely tied up in private equity and real estate. You can read all about it on Time.com.
Back in September, when the Reserve Fund was breaking the buck, money-market-fund expert Peter Crane said something smart and catchy, which is journalistic gold, so I put it in a story. I think now is a good time to revisit what he said. Or, really, anytime someone offers you twice the going interest rate on an investment and you can’t figure out why.
Naturally, you want the highest return on your money. Except that maybe you don’t. Higher yields usually mean riskier investments — more commercial paper, say, as opposed to Treasuries. Last Friday, before the Lehman implosion, Reserve Primary Fund was the second highest-yielding fund of the 100 largest tracked by Crane Data. For months before that, it was in the No. 1 slot. “You want to act like the smart caribous and stand in the middle of the pack,” says Crane.
Barbara!