This is a true story. Just a few days ago, I received a call from “Mrs. Smith” from Texas. Her husband invested virtually all of their retirement nest egg into a variable annuity on the advice of an advisor he had just met. That was in early 2000.

Today, the $800,000 he invested is only worth $100,000. The nest egg that they planned on using to comfortably retire has vanished. It’s gone. And at 60 years of age, they have little chance of rebuilding it. Their lives are changed forever—all because they made some basic mistakes.

The first step in protecting yourself from a similar fate is to recognize that it can happen to you. Their story is not unique. It’s easy to think that we are smarter, that there’s no way we would make a similar mistake, but that’s not true.

These are very intelligent people -- people who have advanced educational degrees and high-paying jobs. Just because you are an expert in one field doesn’t mean you can’t be taken advantage of in the financial services industry.

In fact, brokers and advisors are trained on what to say and even what body language to use to gain your confidence. It’s called ‘mirroring’. We are more apt to invest with someone who is like us, so some advisors mirror your personality, actions and attitudes to dramatically increase their sales. You think I’m kidding? If so, reread this first step because it applies to you!

The second step in reducing your chances of making a bad investment is to take your time. If an advisor says “you have to act now or you will miss” an opportunity, then miss it! If you are serious about investing the money it’s taken you a lifetime to accumulate, do your homework first. Mr. Smith made his fateful decision to invest only 30 minutes after meeting the advisor!

The next big mistake that Mr. Smith made was that he put 100% of his money into a single investment. Never, ever, put 100% of your money in any investment—even if it is directly guaranteed by the government. Even grandma knows that, yet people do it every day. If an advisor recommends you invest 100% of your money into any single investment, run out the door and never look back.

I received another email this week from someone in Ohio. An ‘Estate Planner’ had just recommended that her mother invest $1,200,000 into an Equity-Indexed Annuity. That’s a great investment…for the agent who would make over $100,000 on the deal! Her 70 year old mother was a recent widow, being asked to invest every penny into a 10-15 year investment. This is insanity, yet it is perfectly legal! Most retirees want an advisor who recommends good investments, closely monitors those investments and takes action when necessary to harvest profits or to stem losses. Instead, most people end up working with a salesperson looking for a commission.

Lastly, Mr. Smith failed to take action while the value of his investment dropped 87.5%. If the value of your account drops by more then 10%, act! Don’t believe anything an advisor who has lost that much of your money has to say.

Unfortunately, Mr. Smith has little recourse. The paperwork he signed essentially released the firm and the advisor from responsibility. By the way, Mr. Smith signed paperwork that wasn’t even filled out! Of course he didn’t read it, either. Never sign something that you haven’t taken home, read and then re-read again. Never sign something that is not completely filled out.

Countless people have lost fortunes by following the advice of people who seemed so friendly and trustworthy. Don’t be one of them. I’m ashamed of the practices used by many of my colleagues in the financial services industry. It’s time the industry changed, removed all the conflicts of interest and began serving its clients. Until then, be on your guard!

Have a financial question? Send me an email and I’ll personally respond, free of charge. Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’.

In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com