- Federally insured deposit institutions
- Money market funds
- Large, established mutual funds
Investors who have endured a year of negative returns — and lost their faith in the markets, thanks to an alleged $50 billion Ponzi scheme — can be forgiven for wanting to stuff their mattresses with cash instead of investing it.
Still, Knight Kiplinger, editor in chief of Kiplinger's Personal Finance, says there are better solutions.
Kiplinger shared several ideas with NPR's Linda Wertheimer about how people can steer clear of Wall Street meltdowns in the banking industry and investment scandals like the one involving Bernard Madoff.
First, find out if any accounting groups are performing large audits on the company you are considering, Kiplinger said.
Then, find out where a fund puts your money — whether it's entirely under their control or held by an intermediary entity that handles deposits and statements.
In the case of alleged Ponzi-master Madoff, Kiplinger said, "He didn't have a custodial firm. You should never accept that."
Kiplinger also recommends diversifying by putting money into funds that invest in stocks, bonds and commodities.
Asked where he would put his money right now, Kiplinger said that given a long horizon — at least three to five years — he would invest in "big, multinational American companies."
And small investors shouldn't be afraid to send their money to major mutual fund companies such as Vanguard, Fidelity, T. Rowe Price or Charles Schwab, he said.
"Actually, the small investor is less at risk if he deals with large companies like this," Kiplinger said, particularly if investors carry out their due diligence in learning the details of how their money is handled at the company they use.
"Rich people don't do their own due diligence," Kiplinger said. "They think someone else is doing it for them. And in this [the Madoff] case, nobody was."