Wealth Without Wall Street

Wealth Without Wall Street

“Wall Street's world turned upside down”
These were the headlines in 2009.
Wall Street financial management has proven itself worthless. Bill Gross was right. “Professional money management is a gigantic rip-off.” Only 2 advisors provided their clients with the correct advice about the total collapse of the market in 2008-9. In one year, most money management clients have seen their accounts plunge 40%, 50% even 70%. No advisor has fired him/herself. No advisor has returned their advisory fees and commissions. In fact, most advisors hid from their clients during the worst of the storm, as acknowledged by Fidelity executives in May 2009.

The naked truth—YOU must build wealth without Wall Street.

What to do?

Look at Wall Street “turned upside down.”

First, when money managers buy and sell securities in their mutual and hedge funds, they are trying to predict the future of the market. There is no proof this can be done over time. Yesterday’s winners are usually tomorrow’s losers. The AVERAGE market return has been 12%, so a few managers will beat the average by luck—Just not the same ones every year. www.Ifa.com/12steps/Step3/Step3Page2.asp#333
Second, you must pay the costs of the manager, her/his marketing group and operations, whether or not s/he makes you a dime. It is always better to pay as little as possible for the same performance over the long term. Costs can take up to 33% of your returns, over time. Investors averaged only 2.57% annually from 1984 through 2002 despite buying the ‘winners’ at the top. www.DALBARinc.com
Third, managers are paid for increasing “ASSETS under management,” not for making you rich. Bringing in more assets is a full-time job. It is expensive to market the funds given that there are now thousands available. It is inevitable that popular funds will grow until they produce average returns with high expenses. Managers want to be rich, not right. It takes luck to pick successful stocks. You do not benefit from economies of scale. As assets grow, fees do NOT shrink.
Fourth, there is much less chance of you being treated poorly by fund management if the structure and governance are customer-oriented like Vanguard’s and TIAA-CREF’s are.
Fifth, many professional managers and Wall Street “insiders” place their core assets in index funds. As bond guru, Bill Gross, said, “professional money management is a gigantic rip-off.”
Sixth, since no manager can consistently beat the market, a mutual fund or hedge fund for that matter, must be evaluated as a commodity. Commodities are usually judged on price. As Benjamin Graham, legendary value investor, said, “Investors should purchase stocks like they purchase groceries—not like they purchase perfume.” Actually, all financial services should be purchased this way—insurance, mortgage, credit, banking.
Seventh, due to changes in access and technology, some manufacturers of financial services and products have decided to enhance their direct to customer channel. Even though Vanguard funds have not been sold by personal selling, it has grown to rival most fund complexes. Discount brokers are now considered to have better customer service than brokerage firm services, according to Consumer Reports. Even though Progressive Insurance is sold by agents, their success in the direct channel has been impressive.
Eighth, Wall Street cannot reduce the risk of investing. Most individual investors have lost 30% to 50% of their life savings in the last Wall Street bubble. Many investors now realize that Wall Street is selling snake oil. Even the promise of diversification has left many realizing that “experts” can’t control risk.
Ninth, Wall Street used to control price—raising the price of investing to grow revenue directly lowers investor returns. The advisor or fund with the highest price does NOT guarantee success: only expenses to investors.

Investors can now control the price. We can use low-cost mutual funds and brokers. Since Wall Street cannot predict the markets and we don’t know if stocks will outperform all other assets over time, we must take the Pascal wager:

Pascal’s wager: The consequences of not being in the markets are worse than being in it for the long haul. Buying the market returns at the lowest price is the best solution for long-term wealth-building. You are better off without “professional” advice.

Example: Member Ron Delaney of New York will gain $400,000 because he asked about his 401k plan. Mutual fund fees are the largest source of overcharges—$400,000—over time. Ron did not believe pension costs were as high as we said. He asked his HR person about the costs of his 401K plan. He received a packet of materials. Finally, he calculated that his annual expenses were 2.1% and his annual fee was $50. His plan offered index funds for just 0.70%. He picked which funds he needed after reading our FREE Guide*. Ron saved $2,800 ($4200-$1400) every year. By the time Ron retires, he may have added an extra $400,000 to his 401k.

Your choice is clear—avoid Wall Street. Their “advice” is just marketing hype. Their research exists to sell their products. Take the advice of unbiased advisors like master investor Warren Buffett,

By periodically investing in an index fund, for example, the know-
nothing investor can actually out-perform most investment
professionals. Paradoxically, when "dumb" money acknowledges its
limitations, it ceases to be dumb. http://www.berkshirehathaway.com/letters/1993.html


* http://www.theinsidersguides.com/index.html

“Professional money management is a gigantic rip-off”

“Professional money management is a gigantic rip-off.” This was written by one of the most successful fund managers, Bill Gross, Director of PIMCO. He admits that his industry is more about luck than skill. People pay managers for the same reason we all think we are superior car drivers. We all think we are above average. Stop and reason! Average means in the middle. For investments, the average—the S&P 500 index—actually beat 88% of large managed funds. businessweek.com/bwdaily/dnflash/nov2003/nf20031114_4313_db013.htm

Recently, a study of the performance of all mutual fund managers over the period 1975 through 2006 shows that NO MANAGER is a consistent winner throughout their career. Some have beaten a market index for some time BUT you can’t count their fees. That’s not fair. We must pay the managers’ fees; even when they lose our money! Just think if plumbers operated like that: Get paid handsomely and don’t fix the leak—they would be sued immediately. Managers don’t stop charging when they lose your money.

Take Away: your earnings will be higher by doing nothing—don’t use someone else to pick stocks or funds—just let it ride on the average of the markets. nytimes.com/2008/07/13/business/13stra.html

An investment in a mutual fund that holds common stocks has provided returns of 12% over most periods 10 years or more. An index fund holds many different company stocks so you don’t lose money if one company goes bankrupt. If you use low-cost funds, you will keep more of what your account earns. If the fund earns 12% and you pay 0.1% for bookkeeping, your investment will compound at 11.9% over time. Every year the returns will be different of course. However, when you hold tight and don’t buy and sell, you win. Instead of paying a stock picker, you should pay a hypnotist to make you forget your long-term account. Our members provide their experiences to illustrate where to invest: http://www.theinsidersguides.com/freeguide.html

Don’t fall for the myth of “professional” money management. Wall Street makes up stories that we want to hear. Money management is just a sophisticated lottery game and only the game owners profit by it.