The Tragic Investing Tale of "Big Al" Clifton

"William," he said to me one evening when I was at his house for a visit, "you know a lot about investments, don't you? Well, here's my situation. I have 140 grand from my retirement and buyout. I need to double that in a year. And I can't afford to take any risk."

At first I thought Mr. Clifton was pulling my chain: After all, this was the colorful "Big Al"- a man who liked a good laugh.

But I immediately saw he was serious.

"That's not possible, sir," I told my buddy's stepdad. "To even try for a return like that, you're going to have to take on so much risk that you could actually end up with nothing. Please don't do it. I'll help you find someone good to work with, and we'll get a good plan worked out for you."

I argued pretty hard, as I recall, and even resorted to begging. I left that night believing I'd made my point.

Unfortunately for "Big Al," there are brokers out there who are only too happy to tell their "clients" what they want to hear. A young broker from one of the discount houses did just that.

"Sure, Mr. Clifton," the young broker assured him, "we can double your money."

Even more unfortunate: It was 2000, the height of the "dot-com" era - which made it seem possible to get the kind of returns Mr. Clifton was hoping for.

That young broker put Big Al in all sorts of dot-com stocks, "unit investment trusts" (UITs) that were focused on the Internet, and some other tech-focused investments that actually assessed penalties for early withdrawal.

The risk levels on each of the individual investments were huge. And they all faced the same risks, meaning that if one of the holdings got clobbered, chances were good that all the investments would get clobbered.

And that's exactly what happened...

Mr. Clifton was late to the Internet-bubble party. When it burst, his Internet-fueled portfolio blew up.

And the shellacking he took was magnified by the penalties he had to pay when he tried to extract some of his money from the high-commission investment products the broker had put him into.

By the time Big Al extricated himself from the smoking crater that used to be his retirement portfolio, he'd lost about half his money.

Sadly, he never recovered.

One day about four years later, the man they called Big Al told his wife that he felt lousy and was going to take an afternoon nap. Mr. Clifton never woke up.

Although he'd lived in Maryland, Mr. Clifton's funeral was held in the tiny Pennsylvania town where he grew up. The line at the viewing was so long that folks had to wait for two hours just to pay their respects.

I've thought about the sad case of Big Al often in the ensuing decade. And what I realized is that there are at least five lessons to learn from it all. They are:

1. First and foremost, take charge of your own financial future. If you don't, no one else will.
2. As part of Lesson No. 1, if you are going to invest, understand what it is that you're buying. Mr. Clifton didn't, and the hair-trigger booby trap that stood between him and his retirement savings proved to be disastrous.
3. There are many good, professional people at work in the financial-services industry. But you have to watch out for the passel of jackals that are terrific at sensing weakness and vulnerability- the kind of vulnerability created by a lack of knowledge or understanding.
4. Never try to "make" the money you need in the stock market. If you need $5,000 for a down payment on a car in six months, don't try to make it in the market. Mr. Clifton committed that sin, too, and it cost him.
5. Be honest when you assess risk. Don't take on more than you're comfortable with, or that doesn't mesh with your financial goals.

Take these lessons to heart.

Embrace them as the "second chance" that "Big Al" Clifton never received.