The Wild West in 401(k) investment scams
One of the limitations in what investments you can put in 401(k) protected retirement savings plans is that the investment has to be a passive investment. That is: you can’t start a business and put it in your 401(k), or more specifically, the performance of the business can’t depend on your efforts.
Lately I have seen a lot of sales pitches for what used to be considered to be risky investments to be put in peoples’ 401(k) plans.
The first is Cryptocurrency. Personally, I think cryptocurrency is a social cancer and should be illegal. I agree with Paul Krugman, Nobel-prizewinning economist. He says Crypto is becoming the new “subprime”, and that’s not a good thing. I agree with him that Crypto serves no socially-useful purpose, and it is used for socially harmful purposes like money-laundering and spreading cash through illegal enterprises. It is also socially harmful because unscrupulous promotors can sell cryptocurrency “investments” to people who don’t really understand Crypto – which is 99+% of the population including many people making their living off of it. In my view, Crypto doesn’t belong in your IRA at all. If you ignore this advice, please limit your investment to what you can afford to lose.. If you get scammed, it is unlikely that the government or a private lawyer will be able to get your money back.
The second IRA scam is “Turn Key Real Estate Investments”. According to the seminars, the company helps you find and buy a property, then you hire the company to manage it, and you don’t have to do a thing except pick up your money. Well there is nothing passive about being a landlord. A property that is rented today may be vacant and torn up tomorrow. Consider this: if the property being offered is such a cash cow: why is it being offered to you? Why didn’t the company buy the property itself? Most of these companies do own properties that they manage. The cream they keep for themselves. Ultimately, I think some of these operations will be found to be illegal, but that’s not going to help most of the investors.
The third – Precious Metals – see Cryptocurrency above. If you don’t understand the market, you are liable to get hosed.
I may add to this post when I think of things. However you decide to invest your money, I suggest that you diversify both the types of your investment and who you trust to hold onto your money. People who invested all their money with Bernie Madoff made their first mistake by investing all their money with any single entity. Don’t invest in assets you don’t understand.
