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"Too good to be true' maxim applies to investing, too

The Ponzi scheme never seems to go out of style.

Named after a famous swindler, Charles Ponzi, the term is used to describe investment scams in which money from new investors is used to repay old investors until the whole enterprise collapses. Inevitably, scams run short of new investors unless regulators shut them down first.

Ponzi did his scheming in Boston in 1920, raising $9.5-million by selling promissory notes that pledged to pay a 50 percent profit in 45 days. He told people he earned his profits from trading in postal reply coupons.

Today, Ponzi has so many imitators that the North American Association of Securities Administrators recently put Ponzi schemes at the top of its list of the top 10 "scams, schemes and scandals" investors are likely to face this year.

Just like the the original Ponzi, today's Ponzi schemers promise tempting returns. Usually they involve notes, preferred stocks or investment contracts. Sometimes the sellers are insurance agents lured into the scam with promises of high commissions. Whether they are blinded by dollar signs or just naive, they fail to investigate before promoting the scam artists' wares to their clients.

Older people investing for income are prime targets for Ponzi schemes, although anyone with money to invest is a potential victim.

Ponzi schemes are pretty easy to avoid if you know what to look for. The best protection is to assume that investments offering high fixed returns are scams until proven otherwise. Reassuring statements from the seller don't qualify as proof.

Since they don't intend to deliver, Ponzi scheme promoters have no qualms about promising the moon and the stars, and throwing in the sun for good measure. Be skeptical when you hear the terms "risk-free" or "guaranteed" used to describe anything with an above-average yield. Thoroughly investigate anything touted as a "CD alternative."

If an investment seems the least bit unusual, get a second opinion from someone you trust. If you still have doubts, don't invest. If you decide to go ahead, limit your risk. No single investment _ not even the bluest blue-chip stock _ should comprise more than 10 percent of your total investment portfolio.

Q. When will we be able to file our income tax return electronically for free?

Right now. Free filing information recently went up on the IRS Web site (www.irs.gov), so check it out. TurboTax is offering free filing to those 22 or younger and those 62 or older. H&R Block will give its Web service away for free if your income is $34,000 or less. Some other sites take the income limit up to $40,000. One, 1040now.net, will file your return for free if your income is $100,000 or more.

Q. If you got an $800 tax credit in August, then discover your refund this year is less than that, do you owe the difference? Wasn't the tax check in August effectively an advance on your tax refund?

The August check was not an advance on your refund. It was an advance on the child tax credit, which is just one of the factors taken into account in determining whether you get a refund or owe money.

When you do your return, you will need to fill out the child tax credit worksheet. The money you already got will be subtracted from your maximum child credit. However, your maximum credit will not go below zero.

For example, with two children, your advance credit was $800. When most two-child families do their worksheets, they will find they qualify for another $1,200 ($2,000 minus the $800 received in advance). But if it turns out your income was too high to qualify for any advance credit, you don't get any extra money, but you also don't have to pay back the $800 you already got.

After you have figured out your child credit and all the other stuff on your return, you will calculate how much tax you owe and subtract the tax you paid in advance. The bottom line may be that you owe the government or that the government owes you.

_ Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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