Don't Let the Tail Wag the Dog
A tax break that looked too good to pass up.
"Never let a tax write-off talk you into an investment you wouldn't make without one."
Meet Rachel. She and her husband inherited several million dollars after her father-in-law's passing and, on the advice of their financial advisor, went looking for investments that could reduce their family's taxable income.
After receiving the inheritance, we went looking for investments that could reduce our family's taxable income.
About a year in, we were pitched an investment in an oil and gas fund. The pitch: put in $100,000 and get almost $100,000 in tax deductions the first year.
To seal the deal, this wasn't a stranger cold-calling with a pitch. This was our trusted financial advisor. He told us he'd been in their previous fund himself for two years and was a "partner" on the new one. He said he'd vetted the operators, seen their books, seen their bank accounts. He'd even flown down and walked the operation. It's all real, he told us.
Beyond pumping gas into our cars, we knew nothing about oil and gas. But our trusted financial advisor was vouching for it, and it came with exactly the tax deduction we'd gone looking for. So we did no due diligence of our own.
We wrote the check. $100,000.
Four months later, our financial advisor contacted us with news. The entire operation was a Ponzi scheme, and the money we'd invested was gone.
For a long time we thought the lesson was about trust. It's really about letting the tail wag the dog. Our focus was on getting the tax deduction, with almost no attention on the actual underlying investment. Looking back, we should have put all our effort into finding a good, solid investment and treated the tax deduction as a bonus. These days when we invest, the dog wags the tail.
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