Many of us turn our financial matters over to professionals because our interests are elsewhere: dating, clubs, movies, busy working/raising children, theater or even fashion. Admittedly, finances do not stand a chance by comparison--not very sexy. Yet you may be the lucky person who can temporarily set aside the vibrant glamour of our community for a bit and make time from your busy schedule to re-examine your personal finances.
The financial industry tries to preserve a monopoly on investment information. They are adept at flooding the financial media outlets with petty distractions and train their investment bank brokers to omit investment plans which fit the consumers' best interests with low cost funds. Don't rely on regulations for help. The industry hides behind rules which subvert transparency of costs as they protect their own profits.
One initial way to demystify sales pitches and objective information is to remember the subjective and objective dichotomy. Subjective (or personal) opinions are radically different than objective information. Subjective comments originate from emotions in an all-or-nothing view. For example, "You will lose money in the stock market!" Subjectivity provokes an emotional reaction from you to set you up for a product which will conveniently take care of the "threat." These comments are unverifiable, short-term and biased.
With rare exception almost all financial information from the media is subjective. How can the consumer unravel jargon meant to obfuscate financial decision making? Recognizing objective information.
But what is objective financial information? By definition, all objective comments originate from independent evidence. For example, applied to finances: "A broadly diversified portfolio of stock mutual funds and bonds reduce stock market risk." Objectivity is neutral, informative and verifiable. You can look up the history of many stock index funds and bond portfolios, asset allocations and check the data (i.e., lazy portfolio past returns and Morningstar).
Who doesn't know that sales pitches are notoriously subjective? What are the clues in the initial sales pitch which help the consumer separate subjective and objective comments? Objective financial information will help us navigate promises of a robust retirement hidden in a daunting maze of endless financial information. The following compares sales pitches we heard and read compared line-by-line with objective financial information.
Sales Pitches (S) versus Objective Information(O)
1. S: "My fees are paid by the interest earned on your account, not from your principle." (BTW, any interest is your money too! Hmm... that's the piece of information omitted).
O: "My fee is $200 per hour." (The fee you pay doesn't get any clearer).
2. S: "I have a suitable product for you."
O: "I will help you set-up a retirement and investment plan, which you will understand. I will help you rebalance and stick with it especially when the market gets shaky like it is now."
3. S: "I guarantee X percent returns for X number of years."
O: "Future returns are unknown and unpredictable. There are no guarantees."
4. S: "I can double your money in ten years with guaranteed rates."
O: "The goal is to build wealth slowly over a working career through a broadly diversified portfolio."
5. S: "Don't worry about my costs. The returns will pay for them."
O: "You will pay a fund cost and my hourly fee. But we will keep costs low with the index investing strategy."
6. S: "Our LGBT professionals will take care of all your financial concerns."
O: "Our LGBT professionals are members of the National Association of Personal Financial Advisers or Garrett professional organizations. We are Registered Investment Advisors (RIA) with the Securities and Exchange Commission or a state securities agency and will sign a fiduciary oath to put your interests ahead of ours."
7. S: "LGBT finances are complicated and you will get confused."
O: "Retirement planning and investing can be learned by most people. Estate and taxes may require an attorney and a tax professional."
The sales pitch and objective information dichotomy reveals a clear difference in tone. If you have gone to a financial presentation complete with a free lunch or dinner you should recognize one or two of those pitches. They are intentionally vague to create complications and exploit fears. They keep people unfamiliar with finances and supplant naiveté with artificial trust. That artificial trust becomes an ongoing hook -- whereby it becomes difficult to change plans later, having to admit that you bought a sales pitch.
Recognizing objective financial information will protect you from sales pitches, but isn't sexy. It is also absent of the bell and whistle promises or guarantees. Our peace-of-mind came when we implemented a low-cost plan which kept gains in our nest egg. Do we really want to invest with self-serving and expensive financial giants thinking that their proprietary good sense will make us rich? We don't think so.
Our peace of mind comes from a low-cost portfolio invested in diversified passively managed index funds (Click here for additional information). Confirmation of balance, appropriate risk level, beneficiary protection can be obtained by accessing a fiduciary fee-only financial adviser (paid by the hour). These advisers use objective financial information and act accordingly -- in your best interests for a change.
Content concerning financial matters, trading or investments is for informational purposes only and should not be relied upon in making financial, trading or investment decisions.
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