One of 2009's biggest personal finance stories was the capture of Bernard Madoff, creator of the biggest Ponzi scheme in history. If you read the headlines and told yourself it didn't affect you because you weren't rich enough to be snared by such a crook, think again. Some of the investors who got involved had less than $1 million in life savings.

It's best to look at the Madoff debacle this way: Anyone can be duped under the right circumstances. If you want to protect yourself, your friends, or your family members from financial scams, it's good to know when fraud might be headed your way. Here are some tips:

If it seems too good to be true ... you know the rest already. Human beings were given instincts for a reason. Madoff's $50 billion scheme worked like most Ponzi schemes—he and his team took the money from investors under the promise of above-market, steady returns and never actually invested it. They just churned those funds to pay off earlier investors so no one got wise.

Now, it's not always easy to spot such schemes because there are some investment vehicles that might look both respectable and similar to what Madoff did. But you have to do due diligence—research the investment, check the firm's violation history with state and federal securities agencies, and mostly don't go on the word of your best friend alone. In fact, the words "steady return" or "insured investment" should always be your hint to run the other way, or at least to a phone to call federal or state securities watchdogs to see if the investment is legit.

Always diversify. Diversification is not just a smart investing strategy, it's also a life-saving strategy. As markets languished for most of the decade, Madoff's investors were lured by above-market gains that seemed safe. Granted, some opportunities will be better than others, and better than that, legitimate. But here's a key point: Diversification is a necessary strategy no matter who is in charge of your money. Law-abiding money managers lost significant sums during the last market collapse. Never give anyone all the money you have to invest.

Also, love your friends and family, but don't trust them with your future. Madoff's scheme was successful in part because so many people who already knew each other put their money in it. He made small fish feel special because he was including them with some of his biggest investors, which included Wall Street tycoons and celebrities. Exclusivity, or the promise of it, is another scam tipoff. Often the people we love give us great advice on what to do with our money, but any advice that involves putting money in the hands of a third party should be treated with polite suspicion and research even if it's a longtime investment firm. Keep in mind that Madoff was in business for more than 30 years.

Be watchful for older relatives. We've heard it all before. Older relatives might face mental confusion later in life, and some might be lonely and just looking for nice people to talk to. Investment scammers know both these things and given that people in their 80s and 90s were part of a generation that kept their assets close, that's why they're good targets.

Older relatives might not want to share where they're putting their money for a variety of reasons, but it's good to be watchful and ask polite questions from time to time to make sure they're not falling prey to such schemes.

Check custodial relationships. Reputable investment firms generally have an independent custodial feature for their client's money that not only keeps track of it but audits it for when tax and securities officials come calling. Always ask about the third-party custodial relationships at the firm and check them out. Also, take a look at the firm's auditor. Is it a reputable firm or an entity with a name few know?

Stay in touch with reality. If you have money to invest, you shouldn't only be checking for news articles on where your money is invested; you also should keep alert for changing market trends and other indications as to why your investments are up when the rest of the world is down, or vice versa. When it comes to our money, we want to believe that all is right all the time, but a daily reality check from the business pages or cable business networks is worthwhile. At the end of the day, everyone needs to play devil's advocate with their money.

Don't trust the enforcers. The U.S. Securities and Exchange Commission had to admit that it was asleep at the switch in the Madoff matter, and it fired its top enforcement officer as a result. TV cable news channels clearly get swept up in market highs and lows and often don't take a deeper look at people who might possibly be gaming the system. Keep in mind that many federal and state agencies are simply underfunded these days to do the job that must be done. A savvy investor is really no different than a concerned citizen—if you are putting money into an investment, you need to question whether public advocates are doing their job and protect yourself accordingly.