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WISDOM OF AGES At 82 years young, Burt Malkiel has lived through every conceivable market cycle and new marketing fad. When
A Random Walk Down Wall Street in 1973, he had no idea it would become one of the classic investment books in history. The core thesis of his book is that market timing is a loser’s game.
an index fund, which, again, does not to try to beat the market but simply “mimics,” or matches, the market.
everyone is entitled to his own opinion, nobody is entitled to his own facts!
Between 2008 and early 2009, the market had its worst one-year slide since the Great Depression (51% from top to bottom, to be exact).
the S&P 500 Growth Index outperformed 89.9% of large-cap growth mutual funds, while the S&P 500 Small Cap 600 Growth Index outperformed 95.5% of small-cap growth managers.
Ray Dalio’s fund, Bridgewater, hasn’t accepted new investors in over ten years, but when it did, it required a minimum investment of $100 million and $5 billion in investable assets. Gulp.
For the fifth year in a row, ending in 2012, the vast majority of hedge fund managers have underperformed the S&P 500.
According to the financial news site Zero Hedge, in 2012 the average fund returned 8% as opposed to 16% for the S&P 500. In 2013 hedge funds returned an average of 7.4%, while the S&P 500 soared 29.6%, its best year since 1997.
don’t forget to take into account the fees and the taxes
A portfolio of low-cost index funds is the best approach for a percentage of your investments because we don’t know what stocks will be “best” going forward. And how cool to know that by “passively” owning the market, you are beating 96% of the world’s “expert” mutual fund managers and nearly as many hedge fund managers.
It’s time to free yourself from the burden of trying to pick the winner of the race. As Jack Bogle told me, in investing it feels counterintuitive. The secret: “Don’t do something, just stand there!”
Ray Dalio tell you what his ideal allocation would be? The strategy he shares in the pages ahead has produced just under 10% annually and made money more than 85% of the time in the last 30 years (between 1984 and 2013)! In fact, when the market was down 37% in 2008, his portfolio model was down only 3.93%! I sure wish I had known this back then!
“Invest Like the .001%: The Billionaire’s Playbook.”
Most are in disbelief when I explain that there are tools out there that can guarantee that you don’t lose while still giving you the ability to participate in market “wins.” Why haven’t you heard of them? Because they are typically reserved for high-net-worth clients.
Imagine the feeling of certainty, of peace of mind, knowing that you aren’t at risk. How would this change your life? How would you feel when you open up your monthly statements?
Are you funding your retirement or someone else’s?
Owning the entire market is accomplished through a low-cost index fund such as those offered through Vanguard or Dimensional Fund Advisors.
They are paying annual fees of 1%, 2%, and 3% respectively. Below is the impact of fees on their ending account balance: Jason: $100,000 growing at 7% (minus 3% in annual fees) = $324,340; Matthew: $100,000 growing at 7% (minus 2% in annual fees) = $432,194; and Taylor: $100,000 growing at 7% (minus 1% in annual fees) = $574,349.
by paying excessive fees, you are giving up 50% to 70% of your future nest egg.
“Overwhelmingly, mutual funds extract enormous sums from investors in exchange for providing a shocking disservice.”
They were supposed to beat the market. But not only do they rarely beat the market, a significant majority are charging astronomical fees for their mediocrity.
So let’s recap. Not only will the vast majority (96%) of actively managed mutual funds not beat the market, they are going to charge us an arm and leg, and extract up to two-thirds of our potential nest egg in fees. But here is the kicker: they are going to have the nerve to look you in the eye and tell you that they truly have your best interests at heart while simultaneously lobbying Congress to make sure that is never the case.
low-cost index funds like those offered through Vanguard
(We will discuss the difference between a broker and a registered investment advisor shortly.
never again pay insane fees for subpar performance.
By simply removing expensive mutual funds from your life and replacing them with low-cost index funds you will have made a major step in recouping up to 70% of your potential future nest egg!
Vanguard has an entire suite of low-cost index funds (across multiple different types of asset classes) that range between 0.05% and 0.25% per year in total “all-in” costs.
Surprise, the returns reported by mutual funds aren’t actually earned by investors. —JACK BOGLE, founder of
go to a website such as Moneychimp (www.moneychimp.com/calculator/discount_rate_calculator.htm), and it will show you exactly what the actual return is on your money over that period of time.
do you know the difference between a salesman and a trusted advisor? Between a broker and a guide?
The mutual funds sold to me are charging me astronomical fees that could strip me of up to 70% of my future nest egg.
Over any sustained period of time, 96% of actively managed mutual funds are underperforming the market (or their benchmarks). I am being charged 10 to 30 times what it would cost me to own a low-cost index fund and “become,” or mimic, the market.
From 2009 through the end of 2013, the market was up 131%
That’s the fifth largest bull market in history.
We are continually sold and influenced by those who “do as I say, not as I do.” In a sobering 2009 study released by Morningstar, in tracking over 4,300 actively managed mutual funds, it was found that 49% of the managers owned no shares in the fund they manage. That’s right. The chef doesn’t eat his own cooking.
Of the remaining 51%, most own a token amount of their funds when compared with their compensation and total net worth.
these guys earn millions, sometimes tens of millions, for their skills: • 2,126 own no shares in the fund they manage. • 159 managers had invested between $1 and $10,000 in their own fund. • 393 managers invested between $10,001 and $50,000. • 285 managers invested between $50,001 and $100,000. • 679 managers invested between $100,001 and $500,000. • 197 managers invested between $500,001 and $999,999. • 413 managers invested more than $1 million. So the obvious questi...
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In 1940 he wrote the investment classic Where Are the Customers’ Yachts?, or A Good Hard Look at Wall Street.
The joke behind the title has been retold many different ways over the years, but in Schwed’s version, a successful Wall Street broker named William Travers is admiring the many beautiful yachts while on vacation in Newport, Rhode Island. Each yacht he inquires about happens to belong to a broker, banker, or trader. He asks, “Where are the customers’ yachts?” Nearly 75 years have passed since this story was first published, but it could have been written yesterday!
When climbing the mountain, how would you feel if your guide was more concerned about his own survival than yours? As David Swensen reminded me, “Your broker is not your friend.”
THE GOLD STANDARD To receive conflict-free advice, we must align ourselves with a fiduciary. A fiduciary is a legal standard adopted by a relatively small but growing segment of independent financial professionals who have abandoned their big-box firms, relinquished their broker status, and made the decision to become a registered investment advisor. These professionals get paid for financial advice and, by law, must remove any potential conflicts of interest (or, at a minimum, disclose them) and put the client’s needs above their own.
One huge additional advantage? The fee you pay a fiduciary for advice may be tax deductible, depending on your tax bracket. So a 1% advisory fee could really be closer to 0.5% when you take into account the deduction. Contrast this with the 2% or more you pay to a mutual fund manager, none of which is tax deductible.
FINDING A FIDUCIARY If there is one single step you can take today to solidify your position as insider, it’s to align yourself with a fiduciary; an independent registered investment advisor (RIA for short).
And, by the way, you’ll never hear them referred to as “brokers.” They are called registered representatives, financial advisors, wealth advisors, vice president of this, that, or the other thing. In fact, the Wall Street Journal reported
HighTower is now one of the largest independent registered investment advisors in the country, with nearly $30 billion in assets and 13th on Inc. magazine’s list of fastest-growing companies. The explosive growth of HighTower shows that clients want a dietitian. They are sick of being sold meat and then realizing that their health is in jeopardy.
Palm Beach.
Ajay Gupta is the founder and chief investment officer of Stronghold Wealth Management,
Stronghold Financial (a new division of Stronghold Wealth Management)
Stronghold’s patented system accomplishes this in just five minutes—and it’s completely free! Here is a bit more how it works: When you visit the website, www.StrongholdFinancial.com, the system will allow you to “link” all of your accounts (even your 401[k] and accounts you have scattered at multiple firms). It will then analyze every holding you own, every fee you are paying, every risk you are taking. It will give you a comprehensive analysis and a new asset allocation. It will also reveal some of the unique strategies we will review in section 5 and compare them to your current approach.
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