Are You a Victim of the Big Investment Con?
If you think you're going to get rich investing in the stock market, you are a victim of the biggest investing con.
According to a study by Dalbar, Inc., over the last 20 years, the annualized returns of equity investors was 1.87%, which was less than inflation of 2.89%.
The markets weren't the cause of these dismal returns. The S&P 500 had an average rate of return of 8.35%.
Why the difference?
Investors rely on brokers to tell them when to buy, when to sell and how to pick hot performing mutual funds. The premise is they can add value. The reality is they don't.
There is another insidious factor at play. I didn't appreciate it until I made an appearance on CNBC to discuss the relative merits of 401(k) plans. My position was that these plans are rife with excessive fees and costs, poor investment choices and conflicts of interest. The other guest didn't quarrel with these views, but encouraged employees to invest anyway because "it is so easy."
Brokers, advisors and the financial media encourage you to invest in the markets because it is good for their business.
In this week's video, I discuss alternatives to investing in the stock market. They involve hard work, personal discipline, living frugally and believing and investing in yourself.
It reflects the values upon which this country was built.
There is nothing "easy" about it.
And that's precisely the point.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein.
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If you cannot afford to lose one million dollars then you have no business in the stock market.
It's not "Rich people believe in themselves", but more like "rich people care only about themselves". So, if you want to invest, why listen to them?
Republican = selfish
So which is it?
1. Rich people are all selfish Republicans
or
2. There are rich Democrats and Republicans but only the Republicans are selfish
2.
Sorry for the confusion!
Bill Gates and Warren Buffet are both very rich and democrats. They both are going to give their fortunes away almost entirely (and are already spending a lot of it on priorities like finding the cure for disease, education reform and the like). Alternately many republicans like Sam Walton instead give the huge sums of money to their nerdowell kids (which is why it is mainly those kinds of rich people opposed to the estate tax while dem rich people tend to support it and higher taxes in general) which does noone any good, primarily due to selfishness.
It makes sense to keep money while alive as it gives you leverage to make more investments, but keeping it when you're dead does noone any good. The estate tax in this country, above 10 million dollars, should be 95% and go up from there (with an exception for spouses of over 5 years but NOT children and other relatives) so they either give it away (and avoid the tax), help pay for all the services the government provides that helped them make so much money with their business (colleges to educate their workers, roads, subsidies, electrical grid, police ect). The "pass it on to the kids" model is easily the worst of all possible options.
My husband got laid off. We're gonna cash out his 401k and pay off all debts. When he gets back to work, we'll be able to pay it all back, and more.
If it's any consolation to you, many institutional investors get caught up in the same Wall St. hype. The City of Pasadena issued pension funding bonds in 1999, just in time to be tripped up by the 2000 market sell off. During the past ten years, their average return on this borrowed money has probably been well below what they are paying me on the pension bonds I bought (7.33%). Historically, stocks have outperformed bonds, but not in the past ten years. Paying full broker commissions and/or mutual fund loads almost guarantees you worse results. Don't be a chump.
I may not be rich yet, but I will be soon because I watch Mad Money with Jim Cramer.
thelittleguylobby.org
Yeah, Goldman's price is going to turn around any day now...
The average American CEO earns 400 times the average American salary. In Japan they earn 14 times, and in Europe, it is 40 times. Now, are American CEO's that much smarter than everyone else in the world? No. So, the average american is expected to invest their pensions in companies run by CEO's that essentially scoop all the profit to compensate themselves, or put the company into receivorship in order to maintain their compensation. why would you ever invest in a company unless their executive compensation was in line with the rest of the world?
That's exactly the problem with IBM. Back in the "old days" IBM said their greatest assets were their employees, and until Lou Gerstner took over, they were treated that way. First he laidoff 100,000 employees, and in the 1990s ended the defined benefit pension and changed it to a cash balance (401k) plan. In July 2003, a federal district court judge ruled in favor of the employees holding that both the 1995 plan and the 1999 plan illegally discriminated against employees based on their age. Of course, through appeals, all they ended up getting was an extra $319 million. But following Gerstner's footsteps (or pillaging - your choice), Sam Palmisano took it further. He's now laying off older workers (myself included) after losing almost half the value of the 401k in the past 2 years. Sam sees to it that he gets paid $20+ million a year (they still pay Gerstner $2 million a year and give him free use of cars, planes, etc - even though he spent 5 years as CEO of Carlyle after that). Are those two CEOs worth it? Not to the more than hundred thousand families that lost their retirement dreams after giving the company so much of their lives.
401ks were and are a scam for anybody other than executives. The only thing that matters when it comes to a 401k is how much the stock market goes down right when you're wanting to retire.
"Rich people risk capital" - not their own! Steven Spielberg doesn't make films with his own money. Oprah doesn't pay for all of her favorite things. The rich expend money that they can afford to lose, but act like they are parting with their life savings.
This video actually doesn't address much. Is he saying to start investing in small businesses instead? Is he saying that we shouldn't buy stock?
The second part of this video is very unclear. What do poor people invest in for instant gratification? Stocks and 401K? Is he advising the poor to be conservative? What does it mean to "invest in yourself?"
By instant gratification, I believe he is referring to (i admit i didnt actually watch the vid) to retail items, such as electronics, autos, clothing...
Depends on whether or not you understood your investments, and the how the actions of the central banks and policy would affect investment trends. My gold is doing well, my agriculture ETF's and silver have taken a hit, but look strong for the long run. I never "invested" in banking instruments, as I never completely understood their complex financial instruments.
Investment is a risk taking, KISS in order to lower the possibility that you will get ripped off.
First paragragh:
"If you think you're going to get rich investing in the stock market, you are a victim of the biggest investing con."
Third paragraph:
"The markets weren't the cause of these dismal returns. The S&P 500 had an average rate of return of 8.35%."
Contradictory! C-
No. If you read and comprehend he explains the discrepancy.
The reason the rich can make a lot of money in the stock market is because a single digit return on 2 million is a helluva lot bigger than a single digit return on the typical American's 401(k) payroll deduction.
So you're problem is that some people in this country make more money than others.
Life isn't fair.
Nice platitudes, but how about specifics????????
90% of all my money I spent on drugs,booze and women. The other 10% I blew.
Still cynical, Dan. School teachers have to invest in themselves all the time... so wth do you mean by "invest in yourself?" Sounds good.. but it also sounds like new age utopian silliness.
I agree. What does he mean these days to 'invest in yourself' anyway? Invest in some storefront micro-business like the ones I see shuttering wholesale these days? (Plenty of small business types, when it's said and done have an hourly return rate only slightly better than minimun wage, they jus work ALL THE TIME). Does he mean yet ANOTHER spin on the 'retraining' squirrel cage like myself and everyone I know who did back in 90's to snag those 'tech' jobs that are now in Singapore and India?
And who care if I believe in myself? Will that belief stop me from being steamrollered by the Great Depression 2.0 that we are heading into?
What is all that instant gratification stuff that the poor are investing in anyway. These days plenty of poor people are paying up to 50%-60% of their income in just RENT. Is keeping the rain off your head instant gratification?
So could you please be more specific about those investments we are supposed to be making? Because his way doesn't necessarily work any better than playing the stock market either.
Investing in low fee index funds can make you well-off, but it's not likely to make you rich. My portfolio Annual Avg Return over 15 years through YE 2008 is 8.95%. Through most of this period I've been about 80% stocks and 20% bonds. The early years (mid to late 90's) of course had the best returns and my portfolio value was still small, so if you weight my average return based on the size of the portolio, it's 5.5%. Of course, one or two good years will swing that latter number back up near 9%. My total annual avg load over this time (plan and fund fees and mgt fees etc) was about 0.4%, which is tough to get in an employer-sponsered 401K... usually you have to go to Fidelity or Vanguard to get that kind of deal on an IRA. Over time this will make me a millionaire 2 or three times over by the time I retire, but it won't make me rich; that money will have to last 20-30 years, and will be worth much less than today. Solin has a great point. Most wealthy people don't inherit their wealth or invest to make their millions. They own a business and make it work. They plow profits back into the business and grow it. That's how you get 30%++ annual returns year after year, and become rich enough that money is no longer a concern (unless you are truly profligate!).
He makes good points....what he doesn't say is when you are investing in yourself what business is that???
Things are not that clear cut, it's a dirty game out there, even if u follow all these steps, most people still wont make it. Not to discourage anyone but wow not everyone will make it...it's just not set up that way it's like a casino.
You are totally right. It is a zero sum game no matter what people say. The reality si the social welfare works both ways. the middle class are subsidising the rich by having our pensions invested in their businesses while we subsidise the poor with our taxes. Both ways we are being done in by a system that does not work. check out my blog at jeffatlee.iblog.co.za
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