THE BLOG
04/08/2010 05:12 am ET Updated May 25, 2011

"Financial Advice" Is Destroying Your Wealth

"Financial advice" is a wonderful euphemism. It sounds so helpful and reassuring. The securities and insurance industries spend hundreds of millions of dollars a year on advertising to convince you of the value of their services. Much more is spent lobbying Congress to insure no meaningful regulatory reform will be enacted to protect the public from abuse. This money has been a prudent investment, which is more than can be said for the financial products foisted upon trusting investors.

I set forth my views on "Smart Investing" in many blogs. There is only one way to invest intelligently. Fortunately, it's not difficult. That's where the good news ends.

The securities and insurance industries divert attention away from basic principles of finance and Smart Investing by offering a dizzying array of products intended to confuse, seduce and finally separate investors from their money. The financial media is complicit at each stage, reinforcing these erroneous messages.

There are a host of complex financial products that should not be purchased by investors. Here's a partial list:

Variable annuities;
Equity indexed annuities
Hedge Funds
Limited Partnerships
Privately branded or pooled funds
Initial Public Stock Offerings
Venture Capital Funds
Private Equity deals

Perhaps more surprising are the less complex investments that should also be avoided:

Preferred stock
Individual bonds
Individual stocks
Bond mutual funds other than low cost short or intermediate term bond index funds from major fund families;
Exchange Traded Funds other than low cost ETFs which benchmark the investment return of global stocks or the U.S. investment-grade bond market;
Any actively managed mutual fund.

If you followed these recommendations, your returns would improve incrementally over time. However, the securities and insurance industries would lose billions in revenues. That's where the financial media comes in to play.

It distorts the data in order to persuade you how "complex" investing is, which drives you into the arms of "financial advisors". It is motivated by advertising revenue.

Cramer's misleading use of the S&P 500 as a proxy for the U.S. markets is one example. References to the "the decade from hell", the "lost decade" and "the decade of decay" in Time Magazine, the Wall Street Journal and BusinessWeek is another. These misnomers were debunked in an insightful article by Allan Roth.

When confronted with the real data, financial pitchmen resort to rhetoric. An insurance representative who sold Equity Indexed Annuities called my condemnation of them "nuts" and challenged me to provide the basis for my views. When I sent him a comprehensive study co-authored by a former SEC economist, he derided "scholarly articles" as being "out of touch with reality."

As Americans continue to lose trillions of dollars based on faulty, misleading and, in some cases, dishonest investment advice, Congress seems incapable of enacting even the most basic reform that would require all those who give financial advice to be held to a fiduciary standard.

No one is looking out for your best interests. Recognize that "financial advice" is destroying your wealth, your quality of life and your prospect for retirement with dignity. Act accordingly and fundamentally change the way you invest.

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.