Keys to protecting the family stash

It's easy to understand why so many families are afraid to invest.

After all, many of our nation's wealthiest were taken down hard by Bernie Madoff's Ponzi scheme.

But, the scheme initiated by our former NASDAQ chief, teaches some critical investing lessons that require no particular skill at picking investments.

Master these skills, however, and you'll be able to prevent quite a bit of downside risk.

• Never invest strictly based on country club relationships, relatives or golf buddies. This is the number one mistake that investors make. It's not that friends and relatives are necessarily untrustworthy. However, you need to step back, and professionally consider your overall investment situation.

No matter how great the person seems, always check credentials and references. Check the person out with FINRA's (Financial Industry Regulatory Authority) "BrokerCheck" at www.finra.org. Click on "Tools and Calculators."

Check for complaints with state securities regulators and trade organ- izations. Search newspaper articles and online message boards. A Barron's article had raised significant questions about Madoff way before he was nailed.

Check for complaints at www.//bbb.org/us and with attorney generals, both in your home state and the state the person is from. Examine federal U.S. District Court, bankruptcy and appellate court records at http://pacer.psc. uscourts.gov. Even if the person comes out clean, be sure the investments being proposed are appropriate for you and have favorable terms.

• Don't invest in anything you don't understand. Scam artists make things complicated on purpose. Commentator/Actor Ben Stein says he shunned Madoff when he was unable to figure out exactly how Madoff was generating whopping 10 percent to 12 percent returns.

• Determine whether the investment sounds too good to be true. Check current rates on the lowest-risk investments, like CDs and Treasury securities. Right now, those are running from less than 1 percent to about 4 percent. If another investment's yields are significantly higher, expect it to be riskier.

If returns on that investment are significantly higher than those of similar types of investments, as published in say, The "Wall Street Journal," find out why. Read prospectuses carefully, examining the "risks," and talk with fund managers. Be sure you're comfortable taking greater risk, and that you have enough money to weather the storm if any of those risks come into fruition.

• Be skeptical of a money manager's audited investment performance. He may be hiring a friend or relative to cook the books. Examine whether the audit is by a well-known and respected accounting firm.

• Don't keep all your eggs in one basket. Never invest all your money in one stock fund or bond fund. If you have a large amount of assets, consider doing business with more than one money manager.

• Keep hard copies of receipts and statements.

• Check for conflicts of interest. Although investments generally are held by a custodian-typically a major outside brokerage firm — for safekeeping, Madoff's custodian was his own company.

Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Quick Steps to Financial Stability" (Que/Penguin). You can contact them at www.moneycouple.com.