Investing your money is a skimming operation where everyone who is part of the process bleeds off as much of your assets as they can. In exchange, most investors get terrible advice and suffer the consequences. It is so bad, most investors would be better off keeping their money in FDIC insured Certificates of Deposit or Treasury Bills.
Here are seven reasons why your investments are doomed:
- Using a broker. No one has yet to give me a reason why using a broker is a good idea. They are not fiduciaries (meaning that they don't have to act in your best interest), they can't pick stocks, time the markets or pick mutual funds that will outperform other funds.
- Relying on the financial media for investment guidance. John Bogle recently dismissed the advice given by Jim Cramer, the host of CNBC's Mad Money, as "essentially worthless." He was being kind. Cramer and other financial pundits give advice which is actually harmful because investors believe they have some special insight into the direction of the markets or the prospects of individual stocks. They don't.
- 401(k) plans. These plans are a cesspool of high costs, hidden fees, conflicts of interest, poor investment choices, and deception about the real fiduciary status of advisors. As a consequence, participants have low returns, corresponding low balances and dim prospects for retirement with dignity.
- Discount brokerage firms. Investing is not a video game. Discount brokerage firms encourage trading. Trading runs up transaction costs. High costs mean low returns.
- Congress. Where is the much promised reform? So far, Congress has done nothing to protect investors from further abuse by the securities industry, leading many to believe that the regulators are more responsive to industry lobbyists than to their constituents on Main Street.
- FINRA. As Dr. Phil would say: "How is industry self-regulation working for investors?" Delegation of regulation of brokers to this trade association is a national disgrace. FINRA is not answerable to investors. It is beholden to the securities industry. It should be abolished.
- The SEC. Mary Shapiro, the head of the SEC (and formerly the head of FINRA!) has done nothing to disabuse critics who believe she is anti-investor and pro-industry. How difficult would it be for the SEC to abolish the biased and rigged mandatory arbitration system run by FINRA, which re-victimizes investors who have suffered losses due to the misconduct of their brokers? Why hasn't the SEC come out in support of the Fairness in Arbitration Act that would abolish mandatory arbitration in all consumer agreements, including disputes with brokers?
The deck is clearly stacked against investors.
So what are you supposed to do?
Start by picking up a copy of the updated version of John Bogle's classic book, Common Sense on Mutual Funds. Compare the advice and data in that book to the nonsense you get from your broker or the frenetic comments of self-styled financial experts on TV. Act accordingly.
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. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
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