The system of personal money management in this country has become corrupted beyond belief! Those that have trusted it and followed the advice of the vast majority of the financial services industry and the majority of the financial media have seen their finances, their futures, and often their lives, deeply damaged.
Here are the facts:
Most people never benefitted from the greatest explosion in stock market history. Only industry insiders did. $10,000 invested in the S&P index in 1984 became $103,900 adjusted for inflation by 2004. The 85% of Americans who followed the advice of the “experts” earned a paltry $2700 which is only a little over 1% per year. Here’s the proof.
Consider the results of the last 12+ years. On January1, 2000 the S&P 500 was 1394. Today it is 1313. Inflation is up over 30% and the majority of managed funds have underperformed the market by over 2% per year. The net result is that the 85% of investors that entrusted their money, their financial future, to the advice of the “experts” not only didn’t make any money, they lost about half their money, inflation adjusted.
You may be surprised to learn that people who invest their money themselves get over twice the return of the pros. Check out the proof the industry has done all they can to bury, a study so huge it was nicknamed the study of the Decade. Read the industry’s reaction as described in this insider article where they freak out over the damming results of this monstrous and indisputable study led by a team from the Harvard Business School and conducted with both the support of the industry and with data they provided. Be sure to read near the end where they make it clear how much your best interests don’t matter.
Let’s also consider the disaster of managed mutual funds, where 85% of investors invest, at the recommendation of the so-called experts. Over 80% of managed stock funds fail to beat the market each year, and the ones that do change from year to year. In a study of managed fund performance from 1993 to 1998 and again from 1998 to 2003, only 2% of managed mutual funds beat the overall market for both 5 year periods. Their underperformance, combined with their commissions and other hidden costs, will drain your profits away.
Almost all the pros recommend that their clients invest in the 4-5 star managed mutual funds as rated by Morningstar and over 85% of investor’s money dutifully follows that advice. So are 5 star funds better than the rest? A new study examined the performance of Morningstar’s five-star rated funds between 1999 and 2009 and reported that, “Of the 248 stock funds with five-star ratings at the start of the period, just four still kept that rank after 10 years. In other words, it’s not just that five-star funds don’t, on average, continue to lead their peers — they actually do worse.”
Now consider the recent Facebook fiasco. It’s just the tip of the iceberg, but educational none the less. The big banks sponsoring and benefitting from this huge new stock offering, the biggest in the industry- Morgan Stanley, JP Morgan Chase and Goldman Sachs- became aware of critical new negative information about Facebook’s business revenues, secretly cut their revenue estimates before the offering went public, and only told a small number of their biggest institutional investors. Other than that handful of big clients, who were freaked out by the news by the way, the three big underwriters told nobody! The stock, of course, then tanked before the public was told what happened because those that were tipped off began dumping their stock, maybe even shorting it.
To most people, the level of corruption and utter self- interest that this illustrates is just astounding, but as an ex-insider I will tell you it’s just business as usual. And surprise, surprise, no regulation appears to prevent them from doing what they did. I don’t expect the system is going to change in any meaningful way because of this or because of anything short of the public pulling massive money out of the system.
So the financial services industry, your financial advisor, the financial media—did they ever tell you about any of this truly critical information? How about index funds? Has your financial advisor ever recommend you invest actively or primarily in them? I bet not, because there’s no commission even though they are overwhelmingly the best bet for most stock market investors. What about the Financial Media? Why don’t they make sure you’re aware of index funds and recommend them? The bottom line is that the good guys in the media get drowned out by the majority who see to it that anything not in the best interest of industry insiders gets buried and stays buried.
You must protect yourself from this corruption going forward so you can keep and grow the money you save and get to live the life you want. Millions like me never bought into this destructive system. We just stuck to what works and you can too.
Protect yourself, your finances, and your future, by doing what works:
1- Manage 100% of your money yourself. If you cannot find that very rare financial professional that can show you 100% of their track record in writing that demonstrates that they matched or beat the market for at least the last five and preferably 10 years, do it yourself. If you have someone very close to you that has been consistently successful at managing their money then get their input, but not the input of an unproven alleged expert. For all the help you need on exactly how to do this, see my radio show, my website and my blogs. They are all loaded with information of value and free of any vested interest. If you haven’t already done so, also get a copy of my book and use it as your #1 financial reference manual from now on.
2- Spend really smart and save at least 15% to 20% of your income. I strongly believe that, barring loss of job or other such problem, that basically anyone can do this. It’s done by spending smart, really smart, and none of us knows all the ways that can be done. I’m always adding more creative tricks and instruction on my website, in my blogs and on my radio show. Saving 15% to 20% of your income is the #1 path to financial freedom, as it really isn’t how much you make but what you do with it that counts.
3- Invest in index funds. When the time is right to invest in the stock market, which is not now, invest all or almost all of your stock investment money in index funds. Over the long run, this one simple type of investment has been proven to outperform all other stock market choices and it’s the only stock market investment most people should make. To learn more about index funds read my blog on the subject. It’s simple stuff that you can easily manage.
4- Invest in what matters most. Invest in your career or business, in your health, and in your relationships, as these are the keys to a successful and happy life. Yes, you need enough money for the basics, but it won’t be money that will end up mattering in the long run. These are the things that will matter.
There are currently over 10 million baby boomers that can’t retire. What are they going to do? I very much hope you are not in this number and know that you don’t ever want to ever end up there. Well you don’t need to. Leave the failed existing system and join the millions of people like me that do what works. All the information you need is on my website, in my blogs, on my radio show and gathered in my book. As always I remind you that I have no vested interest in the outcome of your financial decisions, I’m just here to help.
Have questions for me or topics you’d like to see covered in my blog or on my radio show? Send them to me at share@moneysmartonline.com.