Investment scams cost Americans billions of dollars every year - how to protect yourself

Kansas City Chiefs tight end Travis Kelce is among the victims of $35 million Ponzi scheme.

Here's a simple message to sports stars, entertainers and anyone else who hits the big time at an early age and doesn't know what to do with all that money.

Don't do what Travis Kelce and many others before him did. Don't get lured into a clever, obscure get-rich-quick scheme sold to you by a plausible-sounding con artist.

Actually, this also goes for everybody else as well. Even people without much money are being targeted by con artists. The FBI reports that over 1 million Americans contacted the bureau last year to complain that they'd been targeted by online scams of one type or another. Total reported losses exceeded $20 billion, including nearly losses of $9 billion on investment schemes. As always, the actual complaints are just the tip of the iceberg.

In the case of Kelce, aka Mr. Taylor Swift, the scheme ended this week, as many schemes do, in federal court. The organizer, Siddarth Jawahar, has been sentenced to 11 years in jail for fraud. Kelce, along with Jawahar's other victims, lost $35 million. It's not known how much they will get back.

If you want to understand how much their faith in Jawahar really cost Kelce and his other investors, consider some basic math. According to court documents, Jawahar's scheme took in money over a period of seven and a half years, from July 2016 to December 2023.

If those investors had poured that same $35 million into one simple Vanguard fund - the Vanguard Total World Stock Fund VT - at regular monthly intervals during that same period, today they would have $83 million. That's their original investment plus nearly $50 million in profits, according to PortfolioVisualizer calculations.

Instead of ... whatever is actually left.

I chose the Vanguard fund for this example not because it has performed particularly well, nor with the benefit of hindsight, but because it is the simplest, most basic stock fund you can buy. It owns the stocks of effectively all the world's big and medium-size companies, just over 10,000 of them, in exact proportion to their market value in dollars. It has 62% of its money in U.S. stocks, another 28% in the stocks of developed markets in places like Europe and Japan, and 10% in emerging markets. It's the fund you might buy if you admit you know absolutely nothing about individual stocks and don't want to pick any of them. Fees are 0.06% a year.

Average return since the launch of Jawahar's Ponzi scheme? Oh, 12.5% a year.

Kelce is not the first sports star to be snared in an investment scheme. It's so common it's become something of a cliche.

Joon Um, a financial planner at Secure Tax & Accounting in Beverly Hills, Calif., says he sees this a lot.

"Having some clients like that myself," he tells me, "I've seen how quickly successful people can get approached with 'exclusive' investment opportunities. Athletes and other newly wealthy people can be especially vulnerable because they have money, limited time and often a large circle of people pitching them deals. My advice is simple: Slow down, diversify, independently verify who is managing the money, and be skeptical of anything promising unusually high or consistent returns. Being wealthy can actually make you a bigger target."

Professional athletes earn a lot of money very quickly, often at a young age. They "aren't necessarily more gullible than everyone else, but they can be unusually attractive targets," says Charles Sachs, a financial planner with Imperio Wealth Advisors in Coral Gables, Fla.

The real vulnerability isn't "a lack of intelligence or financial literacy. It's trust," Sachs says. Athletes often get introduced to a scheme by a teammate, agent, friend, family member or business associate. "Once someone you trust says, 'I'm invested in this too,' social proof can begin replacing independent due diligence."

Robert Persichitte, a financial planner and fraud examiner with Delagify Financial in Arvada, Colo., says sports stars are especially attractive targets for con artists because they are so public.

"Celebrities' and athletes' compensation and identities are well known," he says. "Scammers have a ballpark understanding of how much money their victim has and what their income looks like. It reduces the amount of time you waste on marks with no assets."

Mark Sanaiha, a financial planner with Macallen Capital in Phoenix, Ariz., suggests that athletes, celebrities and anyone else who is suddenly getting pitched complex investment ideas should take some advice from two of the most successful professional investors in modern American history - former Fidelity Magellan Fund manager Peter Lynch and Berkshire Hathaway $(BRK.A)$ (BRK.B) legend Warren Buffett. "Consider a philosophy that Buffett and Peter Lynch share: If you can't explain it to a teen in two minutes or less, maybe you shouldn't own it," he says.

Buffett has already said that when he dies he wants his estate invested 90% in Vanguard's low-cost S&P 500 SPX index fund VFIAX and 10% in U.S. Treasury bills.

Among the many ironies of all this is that newly rich sports stars and celebrities have the least reason to gamble on obscure get-rich-quick schemes. The more money you have, the more you can afford to ride out stock-market turmoil. That's certainly true if, like Kelce, you have made an estimated $120 million or more playing professional football. Oh, yes, and reportedly his wife has made a buck or two as well.

-Brett Arends