Bernie Madoff Lesson: Diversify

The alleged fraud reminds us of the basic investing rules.

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The stories about families losing their life savings because their money was invested through Bernie Madoff are heartbreaking. In addition to the wealthy and powerful, such as the Uma Thurman’s fiancé, plenty of ordinary folks have also lost out because of the alleged $50 billion fraud perpetuated by Madoff.

Perhaps it’s not always possible to make sure your money in 100 percent safe, but the basic rule of investing – to diversify -- would have helped these victims avoid their fate.

Diversification – in stocks, market segments, and institutions -- reduces the chances of losing everything. If one fund goes under, you still have the others. The families that put all their money with Madoff would have been much less exposed if they spread out their savings to multiple institutions and investors.

Of course, in hindsight, it’s easy to see what the victims could have done better. Now all they can do is wait – and hope to recover some of their assets.