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These facts make no sense to me.
1. Brokers have no demonstrated ability to reliably and consistently pick stocks, time the market or select outperforming actively managed funds, yet millions of Americans entrust them with their retirement savings, with full knowledge they are engaging in those discredited activities.
2. Most actively managed funds (where the fund manager attempts to beat the returns of a designated benchmark) fail to do so every year and especially over the long term, yet you continue to invest in them.
3. Low costs correlate positively with higher expected returns, yet millions of Americans pay high costs for mutual funds that consistently underperform low cost index funds.
4. Every legitimate profession has required educational requirements (like doctors, lawyers and C.P.A’s). Your stock broker (who you rely upon for your financial security) could be an 8th grade drop-out, who formerly sold used copiers. There are no formal educational requirements.
5. Hedge fund managers rake in billions of dollars by charging 2% of assets under management, plus 20% of profits, yet investors could typically have achieved higher returns by investing in a balanced index fund from Vanguard or others and paying a low management fee of 0.19%.
6. Almost all complex investment products underperform low management fee index funds, yet hundreds of millions of dollars are invested in these products every year.
7. Short sellers can place a big bet on the price of a stock going down, then go on television and trash the stock in an effort to profit from their trade. There’s nothing illegal about this activity.
8. Many investors rely on the financial media for investment advice, yet most of the “news” it disseminates is inaccurate, misleading and often little more than a pitch for business by the guests who appear on it.
9. If you are being charged a fee based on assets under management, your advisor has an economic interest in giving you advice that increases the amount of those assets. Think about that the next time you are told to rent instead of buy or not to pay off your mortgage. Ethical advisors will disclose these conflicts and resolve them in your favor, but not all advisors are ethical.
10. Brokers have no obligation to disclose conflicts of interest. These conflicts are rampant and affect the advice they provide. If you’re okay with relying on someone for financial advice who can — and often does — resolve conflicts against your best interest, proceed at your peril.
11. If you’re one of the millions of Americans without a will, you are reckless, irresponsible and uncaring. Think about that the next time you call your spouse while the plane is awaiting takeoff and end the call by reaffirming your “love.” If you meant it, you’d have a will.
12. While you and almost everyone else believe Warren Buffett is one of the greatest investors of all time, you routinely ignore his advice. His trustee has been instructed to buy an S&P500 index fund for the stock portion of his wife’s inheritance. If you did the same, you would outperform the vast majority of “investment professionals.” Raise your hand if that’s how you’re currently investing.
13. There no valid reason why your 401(k) plan should have as investment options anything other that 3-6 portfolios consisting solely of low management fee index funds, with asset allocations ranging from conservative to aggressive. The reason few do is to benefit mutual fund families, brokers, insurance companies and other vendors to the plan. It’s amazing that millions of employees put up with this system, which is a national disgrace.
I kept this list to 13 facts because that’s an unlucky number. You don’t have to accept your “unlucky” fate. It’s time to take control of your investments and act responsibly.
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