Bernie Madoff was supposed to be the last descendant of Charles Ponzi—or so I thought. I wasn’t wrong to think that, because Bernie’s Ponzi scheme was so expansive, so spread out, and drew celebrity-like attention with royal-wedding-style media coverage. I figured the media had done its job of giving us all a crash course on speculative assets and “guaranteed” returns.

You know, guaranteed returns on speculative assets are like Santiago, the protagonist in Ernest Hemingway’s The Old Man and the Sea, tired of going out trying to catch a big fish, deciding instead to sell his fellow villagers a guaranteed share of his daily catch.

Charles Ponzi, the Italian immigrant for whom the term “Ponzi scheme” is named, was the first person to orchestrate this type of fraud—using funds from new investors to pay earlier ones, while promising huge, guaranteed returns. The house of cards always collapses when the money well dries up.

Ponzi promised investors extraordinary returns—sometimes as high as 50% in just 45 days—by claiming he had a way to profit from arbitrage in international postal reply coupons. American investors lost millions of dollars in his scheme.

Bernie Madoff, meanwhile, ran his fraud for decades. He made his fund so exclusive that potential investors were on waiting lists for years before Bernie would do them the “favor” of taking their money.

The Great Recession dried up the source of new money, and Bernie’s elaborate scheme was finally exposed. He defrauded thousands of investors—from teachers to institutional giants—out of an estimated $70 billion.

It’s still beyond me how those institutional investors got so duped when they were supposed to be accredited, but that’s a topic for another article. Madoff was convicted and sentenced to 150 years. He died in prison in 2021.

Madoff’s collapse failed to provide the basic investment education Americans needed, because since then there have been nearly a hundred “baby Madoffs,” who stole between $233 billion and $521 billion from investors between 2018 and 2022, according to the U.S. Government Accountability Office.

The sales pitch is always the same: “Invest in our fund, trucking business, or day-trading pool. We guarantee you a fixed return.” That’s your red flag.

Here’s the truth: only fixed income, insurance products (like fixed annuities), and cash equivalents such as certificates of deposit (CDs), Treasury bonds, T-bills, and money market accounts can guarantee a fixed nominal return. And those returns usually don’t top 4%. Nominal returns don’t factor in inflation. With the current U.S. inflation rate at 2.7%, the real return on those fixed assets is closer to 1.3%.

Investors should run for the exits whenever they hear, “This opportunity is only available to a select few” or “We deliver steady 15–20% no matter what the market does.”

All investments carry both systemic and idiosyncratic risks. Stocks go up and down. Businesses’ revenues and profits fluctuate with both macroeconomic trends and company-specific risks. No genius—not even Warren Buffett—can truly offer guaranteed returns on speculative assets.

In fact, if you ever connect with the Oracle of Omaha, he’ll tell you to invest in index funds.

The problem is that too many investors believe there’s a fast, easy way to get rich. There isn’t. What there are, instead, are strategies that let you invest while still sleeping well at night.

First, before investing, pay off all your expensive debts—credit cards, personal loans, car loans. Then build an emergency fund of 3 to 6 months of total expenses. Some financial folks say “3 to 6 months of nondiscretionary expenses,” but don’t listen to them. You need both discretionary and nondiscretionary covered so you don’t have to cancel Netflix or your gym membership. If you’re a minority, it may take longer to land another job, so aim for 6 to 12 months of expenses. Also review all your insurance—health, life, disability.

Now back to investing. Park your emergency fund in a high-yield savings account, which currently offers around 4% APY. A regular savings account gives almost nothing—about 0.01% APY.

After building your emergency fund, contribute to your employer-sponsored retirement accounts such as a 401(k) or 403(b). These are tax-deferred accounts. If you make $50,000 a year and invest $7,000 in your 401(k), you only pay taxes on $43,000.

The goal is to contribute at least up to the employer match. For example, if your company matches dollar-for-dollar up to 6% of your salary, you contribute 6% of your $50,000 salary ($3,000) and your employer adds another $3,000. That’s $6,000 a year invested. Employers usually offer a menu of funds; the best choice for most people is a target-date fund, which automatically shifts from stocks toward safer assets like bonds as you near retirement.

The government lets you contribute up to $23,000 a year to tax-deferred accounts, and if you’re 50 or older, you can contribute an additional $7,500 in “catch-up” contributions.

After maxing out your 401(k), you can open a Roth IRA or Roth 401(k). These are funded with after-tax money, but the withdrawals in retirement are tax-free. You can fill them with ETFs and mutual funds. And lastly, if you want, you can have a speculative brokerage account—your sandbox for things like Dogecoin.

As you can see, wealth building is possible, but it’s slow. Be on alert the moment someone claims they know a shortcut.