This Common Mistake Cost My Mom Half Her Retirement. You Can Avoid It...

[Inside Wall Street with Nomi Prins]( This Common Mistake Cost My Mom Half Her Retirement. You Can Avoid It… By Nomi Prins, Editor, Inside Wall Street with Nomi Prins There are moments in life that can redefine your retirement. Today, I want to share one of those moments with you. It has to do with my mom and a broker at Smith Barney two decades ago. My mom is a smart, independent person. So, when she decided to invest her retirement funds with a brokerage firm called Smith Barney, she didn’t ask for my opinion. Smith Barney was a prestigious institution. Its history went all the way back to 1873. You may even remember its motto from a TV commercial in the 1980s, where actor John Houseman said: “They make money the old-fashioned way. They earn it.” All that was before a telecom company called WorldCom went bankrupt on July 21, 2002. And not quietly, either. I chronicled the rise and fall of WorldCom in my book Other People’s Money. It’s a twisted story. This was the biggest corporate bankruptcy in U.S. history. WorldCom had assets of $107 billion at the time. In its wake, WorldCom left a cesspool of $11 billion in accounting fraud. Its former banks – including Citigroup, Bank of America, and JPMorgan – settled lawsuits with creditors for $6 billion. And its CEO, Bernie Ebbers, served nearly 14 years in jail. But before WorldCom went bankrupt, three things happened. Recommended Link [WARNING: Mandatory U.S. Dollar Recall to Begin on November 1st?]( [image]( If you have any U.S. dollars in your bank account… You must see [this shocking video exposing the government’s new plan to recall the U.S. dollar.]( According to Business Insider, this recall “could be imminent.” And if you don’t prepare now, you could end up holding a bunch of worthless U.S. dollars. [Click here to see the three simple steps you can take now to protect your life savings.]( -- From Glowing Reports to Bankruptcy First, WorldCom bought a lot of other firms after the Clinton administration passed the Telecommunications Act of 1996. WorldCom’s stock rose from $16.50 to a peak of $62.30 in September 1999. Second, a famous telecom analyst and managing director at Salomon Smith Barney wrote glowing research reports about WorldCom’s financial health. This was even as its stock was bucking and it was announcing large accounting revisions. His name was Jack Grubman. And third, WorldCom’s stock began plummeting into bankruptcy, as you can see in the chart below. [Chart] If you're familiar with the book Liar’s Poker by Michael Lewis, you’ll know that Salomon Brothers was big in the 1980s. But what you might not know is the incestuous relationship between Salomon, Smith Barney, and Citigroup. Salomon Brothers merged with Smith Barney in 1997. Then, Travelers Insurance bought the combined company. And Citicorp merged with Travelers Insurance in 1998 to become Citigroup. Yes, all that merging and name-changing can make your head spin. But here’s why I mention it… Citigroup was involved in WorldCom at the investment banking level. At the time, WorldCom was struggling to pay its debt. And as it turned out, it was also cooking its books to hide its true condition. Recommended Link [The One Ticker Retirement Plan]( Over the Shoulder Demo Now Available [image]( Market Wizard Larry Benedict crushed the market in 2022. But he didn't do it with a “traditional” method… For a limited time, he’s sharing a free over-the-shoulder “demo” of his strategy in action. It takes less than 10 seconds… [Watch it here.]( -- My Mom and WorldCom While all that was happening, my mom’s broker was urging her to invest in WorldCom stock. She followed his guidance… and invested nearly half of her retirement fund. This happened during the months before WorldCom shares took a nosedive. She doesn’t remember the exact dates, but shares were already dropping steadily. At the time, it might have seemed like a golden opportunity to “buy the dip.” Because on the surface, WorldCom looked like a world-class company. And it’s not hard to imagine that her broker might have painted that picture for her. But it turned out to be the worst financial mistake of her life. And the “dip” in the case of WorldCom was not related to overall market behavior – but to fraud. From its peak in 1999 to 2002, WorldCom shares plunged 99.1%. In the summer of 2002, the company filed for bankruptcy. As a result, my mom lost nearly half of her retirement funds. And she wasn’t the only one who lost money. Investors in WorldCom stock lost a total of $175 billion. Don’t Make the Same Mistake When my mom bought WorldCom stock, I was a managing director at Goldman Sachs. But she didn’t tell me what happened until months after WorldCom’s bankruptcy. By then, I’d walked away from Wall Street for good, disgusted by the greed and corruption there. When I heard her story, I knew I’d made the right decision. I was furious about what happened to her. First, because she lost that money by trusting a broker to act in her best interest. Second, because of the incestuous relationship between Salomon Smith Barney and Citigroup. It was such that certain brokers could convince their customers to purchase stock in companies that were heading south. Just like my mom’s broker urged her to buy WorldCom. They could tout internal positive research as a way to encourage retail customers to buy that stock. Remember Jack Grubman, managing director at Salomon Smith Barney? He maintained a “buy” recommendation on WorldCom even as it dove from its peak of over $60 a share in 1999 to $7 a share in 2002. On February 8, 2002, he even reiterated his “buy” rating, according to Salomon Smith Barney research reports. That was one major reason my mom’s broker used to convince her to buy WorldCom stock. A few months later, WorldCom declared bankruptcy. Today, the historic Smith Barney name is no more. In 2009, Citigroup sold part of its Smith Barney retail brokerage business to investment bank Morgan Stanley. That combined company – or “joint venture” in Wall Street speak – was called Morgan Stanley Smith Barney Wealth Management. But, in 2012, Morgan Stanley dropped the Smith Barney name. It simply had too much baggage. Recommended Link [AI expert: “Nvidia’s best days are over”]( [image]( Nvidia has been an undisputed champion of the artificial intelligence (AI) boom. It’s up as high as 7,910% since Colin Tedards’s firm issued a BUY recommendation on the stock. But Nvidia’s best days are over. Colin says another AI firm will shock the world in the coming days… and make investors huge gains. [Go here to get the full story.]( -- What This Means for You and Your Money What my mom learned from her experience with Smith Barney is that you have to be wary of brokers. Especially ones that have an institutional relationship with the company they’re recommending. So, here’s my advice on your brokerage accounts, especially for your retirement funds: 1. Be wary of brokers – even the big ones. It’s best to keep your retirement funds with companies that aren’t owned by any mega-banks. That’s a good way to know that the recommendations they offer you aren’t tied to positions those banks might have or might publicly endorse. Independent brokerages include Ameriprise Financial and Osaic (formerly Advisor Group). 2. Don’t put all your investment eggs in one basket – and don’t invest it all at one time. Spread your risk, even when you’re investing in what seems like an amazing opportunity. Don’t invest all your capital in a single name or idea. And invest in small increments, rather than all at one time. For example, say you’ve set aside $1,000 to invest in a company you like. You might choose to invest $500 now and the other $500 in a few months or when you see a dip. You can also consider investing smaller amounts over a longer period of time. This is what we call “legging in,” or “dollar-cost averaging.” None of us can time the market with 100% accuracy. And none of us can get every investment right. This sort of approach can help you protect your nest egg if one of your investments doesn’t work out. Happy investing, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: Inside Wall Street Feedback). MAILBAG Lately, Nomi’s been talking about [the U.S.’ increasing national debt]( and what it means for inflation. This reader expresses what they believe is the biggest cause of the growing debt… The problem with the national debt is caused by the irrationally low tax rate for corporations and the wealthy that the U.S. has compared to all other Western societies, as you undoubtedly know. Regarding deficits, our tax system is clearly taxing the wealthy and corporations way too low, far below a reasonable level, due to false statements about out-of-control spending. Citizens United has resulted in essentially a government for sale with too many corrupt congresspeople not willing or able to understand principles of governing. The media shares the blame for not correctly explaining this. To me, it seems the struggle to make a fair and compassionate society that takes care of all the citizens still has a long way to go. No doubt you are familiar with the wealth distribution graph over the last 40 years showing the great concentration of the country's wealth in the top 10% and 1%, while the rest of the population makes a small gain or none at all. I have limited knowledge, but it seems all the other Western democracies have been well ahead of us in providing benefits of a social safety net. Certainly, costs are a concern. Yet this country is as rich or richer than its peers. It seems the tax system is currently out of whack and quite unfair, the result of constant lobbying by powerful corporate and wealth interests. One only needs to look at the wealth distribution chart from the CBO to see the current situation. To me, it is not a healthy society. Post WWII through 1980, the upper federal personal tax bracket was 70%, and 50% for most of the 1980s. Now, it is 37%. Along with many others, my hope is that as time goes on our society will become more fair and more generous in taking care of all the people. Our political structure was organized in the 1780s for the 13 colonies with a population of 2.5 million people as a new form of government. It is amazing it has worked and lasted for so long. But it has grown far beyond the envisioned scope of the founders in a somewhat random way to a very distorted shape. Now, Congress seems to have difficulty functioning. I wonder what the founders would come up with today if they were to be tasked with organizing the structure, now with 332 million people and vast territory. – Peter S. Do you agree with Peter that higher tax rates for corporations and the rich would help limit the national debt and close the wealth gap in America? If our political system is antiquated, what do you think is the best way to structure it? Write us at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: Inside Wall Street Feedback). IN CASE YOU MISSED IT… [He turns down CNBS and instead helps folks find profit opportunities]( During the 2008 financial crisis, millionaire trader Jeff Clark stunned the world when he managed to double his readers’ money 26 TIMES… CNBC caught wind of this and asked Jeff to come on live TV to explain his secret. Jeff politely said no. Choosing rather to reveal how anyone can collect huge gains in just 8 days… in bullish AND bearish markets… Focusing on only ONE stock. 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