Investment scams

What does a casino do? How does it operate? The key to its profitability is to ensure that enough money comes in the door, stays to play, the odds are hidden, and that the house gets a small percentage of the money in play, whether the patrons win or lose.

Now let’s look at Wall Street. Think it’s different? Well look at how that system is built and operates. To be profitable, Wall Street must convince people that:

• Money management is very complicated. “Let us experts handle your money. We can do it better than you”, say Wall Street insiders. (Get money in the door.)
• The stock market is the answer when it comes to retirement and financial freedom. (Essential to keeping money coming in the door.)
• The only way to invest successfully is to invest for the long run. (Make sure the money stays to play.)
• Wall Street experts know what they’re doing. (Complete investment track records are never shared = keep your odds hidden.)
• Pay us a small percent of the money invested. (The house always wins, even if the client loses.)

Sure sounds like a casino to me. And every one of these Wall Street assertions is absolutely untrue! They are myths, spun for decades, for the sole purpose of enriching Wall Street’s financial services industry and its supporters.

Unfortunately, it’s been far too easy for consumers to buy into these myths. Starting in the mid-80s, the globalization of the economy, the dot com explosion, and 401(k) accounts going from non-existent to over 70 million accounts, all combined to fuel the greatest stock market boom in history. The industry known as “Wall Street”, and the vast majority of the financial “experts” associated with it– the stockbroker’s financial advisors, financial media people, et al—never understood that the boom was just a moment in time, one peak in the endless cycles that markets always go through. In confusion, experts mistook being in the right place at the right time with actually knowing what they were doing. For them, it really didn’t matter. By then they had created their Wall Street system.

As a Wall Street insider all though the 90′s, I witnessed this first hand. In December of ’99, I told all my clients that the stock market had become terribly overpriced and that I was selling my business and most of my own stock holdings. I advised everyone to get out of the stock market because there wasn’t any money to be made there for a long time to come. The Dow and S&P were over 150% overpriced. It was a no-brainer, and yet with rare exception, the expert stockbrokers, financial advisors, and the stars of the financial media did just the opposite, telling consumers to keep right on buying stock and to always invest for the long run.

After I left, I continued to look on in frustration as the futures of millions of hardworking Americans were in the process of being destroyed. Watching as the “experts” failed warn people not to buy a home during the worst overpricing in history, and watching millions of families lose their homes, and watching as it became clear that tens of millions of baby boomers would not be able to retire, that’s when I decided to do something about it.

I understand money. I learned what I know the hard way from over 60 years of real world trial and error, and I realized I could explain successful personal money management to anyone who cared to listen. It didn’t matter what they did or didn’t know, whether they were a PhD in economics or a high school dropout. Smart money management is something that absolutely everyone can do, provided it’s explained properly. Unfortunately, this hasn’t happened, at least not on any significant scale. So, I decided to provide the information that is needed by writing Money Smart: How to Spend, Save, Eliminate Debt, and Achieve Financial Freedom and creating a supporting website, www.MoneySmartOnline.com.

Money Smart starts by making it clear that you–and only you– must manage your money, then goes on to show you exactly how to do it–how to spend, save, invest, and achieve financial freedom. What you’ll find is that there really is a better approach to personal money management, an approach that works.

The bottom line is that it’s your money. Don’t be gamed by the old financial system. Learn what you need to know, and be in control of your finances from now on.

So I was reading some of the endless spin put out by the financial services industry, in this case a NY Times article that I encountered three months ago, and then saw reposted by Yahoo Finance’s Advisor’s Corner on January 5, 2011 called “3 Schools of Thought on Wealth Management“. The financial services industry is scrambling for a new way to package their message to get a hold of your money, but the last thing you need right now is a new sales pitch. What you need is performance and results. The article breaks down the new approach to client management. It says, “In this climate, advisers face a challenge, and, once again, they have had to develop new ways of presenting their services. Speaking broadly, three approaches seem to have emerged”.

And what are those three approaches by which the industry seeks to re-invent itself, in response to its failure?

• The “Caring Approach” (meaning to hold the client’s hand)
• The “Technical Approach” ( meaning unclear, but perhaps to allocate well and charge smaller fees)
• The “Retirement Focused” approach (meaning to fall back on the standard advice of always invest for the long run with its implied promise that it will all work out in the end, because of course this fairy tale must have a happy ending)

It’s a long article that drones on and on, but fails to address what matters most – performance and results! Yet this is the primary reason people hire a financial pro – to grow their money better than they can grow it themselves.

Sadly, the industry track record on their ability to grow their client’s money is incredibly clear at this point. They do not know how to do it, and based on this article and many more like it, they sure don’t want to talk about their track record. After all, why should they? The financial services industry is setup to insure that they always make money, whether or not their clients do. So, now they are focusing on reinventing their approach, without actually changing their performance and so long as they can continue to pull that off, they won’t need to.

While performance in not relevant to the industry, it sure is to the people who have trusted the industry with their hard-earned dollars. In 2000-2001, and again in 2008 when the stock market was terribly overpriced, most of the so-called financial experts continued to repeat their standard advice: “Keep on investing. Invest for the long run”. They urged their clients to keep buying those crazily overpriced stocks.

Well, the game is beginning to change. The industry’s failure to perform has cost Americans a fortune and now people are beginning to look at the practices of the financial services industry with a critical eye. Check out the comments posted below the article I described. There were lots of them and they were scathing. People are starting to see the truth and demand better and that’s exactly what Money Smart was created for: To share a better approach to personal finance and investing, an approach that has been proven to work.

As a former owner of a real estate business and a stockbrokerage firm I am often asked to give investment advice. With interest rates at almost zero and a stock market that’s gone nowhere for the last 10 years, people are under tremendous pressure to make more money on their investments. There are many options to conside, but not all of them are in your best interest. So what can potential investors do to avoid getting taken? It is an amazingly simple common-sense rule: If it seems too good to be true, then it’s too good to be true—so don’t invest!

The world is full of people who want to ‘help’ you get rich, translation: They want to get their hands on your money. Protect yourself by looking out for certain words and phrases that can be warnings. Some of the most common “magic words” used to describe an investment opportunity are: free, secret, sure-fire, anyone can do it, always, no-risk, foolproof, insider, confidential, the smart money is on, nothing down, easy money, magic, not a get-rich-quick scheme, become a millionaire, just a few hours of your spare time, almost nothing to do, and makes-you-money-while-you-sleep. Even one of these words or phrases should be taken as a red flag warning to walk away. If you see more than one, run!

You don’t get high rewards at low risks, or for little effort – and there are no secrets. In the stock market, by the time a stockbroker calls to tell you the ‘smart money is on’ buying a particular fund or stock, you’re either too late or they’re just saying what it takes to sell it to you.