Tags: McDonnell | Star Scientific | investment | leverage

Investing in Get-Rich-Quick Schemes Is Not a Good Solution to Financial Problems

By    |   Wednesday, 29 Jan 2014 06:48 AM

Former Virginia Gov. Robert McDonnell and his wife, Maureen, were recently indicted on a variety of charges associated with accepting gifts while the governor was in office. The indictment offered insights into the McDonnell's finances and a questionable investment decision.

Maureen McDonnell complained to aides that the couple was in debt and struggling with credit card debt. The indictment shows the governor accepted loans to help him meet expenses on overleveraged real estate investments. While under financial strain, Mrs. McDonnell made a dubious investment in a nutritional supplement company.

There are lessons for individual investors in each of the couple's mistakes.

Credit card debt can obviously be overwhelming and a plan to deal with the debt should be developed by anyone facing that problem. The governor could be giving speeches for thousands of dollars apiece or serving on corporate boards for lucrative retainer fees. The McDonnell's plan could have been simply to stop adding to their debt and pay it off when he cashed in after leaving office.

Leveraged investments can cause stress that leads to bad decisions. Bear Stearns and Lehman Brothers failed because of excessive leverage, and many individuals who bought homes with no money down lost homes when the real estate market crashed and the payments were too much to handle.

In what looks like an effort to get rich quickly, Mrs. McDonnell bought stock in a company called Star Scientific, which made unsubstantiated claims about products based on a substance found in cigarette tobacco and smoke. Star Scientific claimed the products could reduce inflammation and rejuvenate skin.

Star Scientific has reported losses in each of the past seven years and had sales of only $100,000 in the year before the McDonnell's investment. Mrs. McDonnell bought 6,000 shares of the stock near its all-time high of $5 a share. At the recent price of $0.88, she has lost more than 80 percent of her investment.

In addition to the loss of $25,000 on the Star Scientific investment, the McDonnell's have also lost the chance, at least for now, of running for higher office or cashing in based on his former position.

Individual investors can learn from these mistakes and should remember that investing in get-rich-quick schemes is not a good solution to financial problems.

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
MichaelCarr
Former Virginia Gov. Robert McDonnell and his wife, Maureen, were recently indicted on a variety of charges associated with accepting gifts while the governor was in office. The indictment offered insights into the McDonnell's finances and a questionable investment decision.
McDonnell,Star Scientific,investment,leverage
377
2014-48-29
Wednesday, 29 Jan 2014 06:48 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved