More on this book
Community
Kindle Notes & Highlights
The stock market is a device for transferring money from the impatient to the patient. —WARREN BUFFETT
Thanks to inflation, the price of almost everything is at an all-time high almost all the time.
The Greatest Danger Is Being out of the Market
it has a devastating impact on your returns when you miss even a few of the market’s best trading days.
study by JPMorgan found that 6 of the 10 best days in the market over the last 20 years occurred within two weeks of the 10 worst days. The moral: if you got spooked and sold at the wrong time, you missed out on the fabulous days that followed, which is when patient investors made almost all of their profits.
You can’t win by sitting on the bench. You have to be in the game. To put it another way, fear isn’t rewarded. Courage is.
one of the most fundamental rules for achieving long-term financial success is that you need to get in the market and stay in it, so you can capture all of its gains. Jack Bogle puts it perfectly: “Don’t do something—just stand there!”
the market never took a dime from anyone! If you lose money in the market, it’s because of a decision you made—and if you make money in the market, it’s because of a decision you made. The market is going to do whatever it’s going to do. But you determine whether you’ll win or lose. You’re in charge.
You know the old saying “Ignorance is bliss”? Well, let me tell you: when it comes to your finances, ignorance is not bliss. Ignorance is pain and poverty. Ignorance is disaster for you and your family—and bliss for the financial firms that are exploiting your inattention!
for the rest of us, picking individual stocks is a losing game.
Why do so many companies want to be in this business? Yup, you got it: because it’s fabulously lucrative!
when you buy an actively managed fund, you’re essentially paying for the manager to generate market-beating returns. Otherwise wouldn’t you be better off just sticking your money in a low-cost index fund, which attempts to replicate the returns of the market?
Every time a fund trades in or out of a stock, a brokerage firm charges a commission to execute the transaction. It’s a bit like gambling at a casino: the house gets paid no matter what. So the house always wins in the end! In this case, the house is a brokerage firm
If your stock goes up, you’ll also have to pay taxes on your profits when you sell the stock. For investors in an actively managed fund, this combination of hefty transaction costs and taxes is a silent killer, quietly eating away at the fund’s returns!
Because the largest expense in your life is taxes, and paying more than you need to pay is
you’re not careful, taxes can have a catastrophic impact on your returns.
Index funds take a “passive” approach that eliminates almost all trading activity. Instead of trading in and out of the market, they simply buy and hold every stock in an index such as the S&P 500. This includes companies like Apple, Alphabet, Microsoft, ExxonMobil, and Johnson & Johnson—currently the five biggest stocks in the S&P 500.
What about index funds? Instead of sitting on cash, they remain almost fully invested at all times.
But would you pay $20 for a $2 taco? No way! Let me tell you, that’s what most people are doing when they invest in actively managed mutual funds.
hope you’re paying really close attention right now, because the knowledge about all these hidden fees will save you a fortune! But what if you’re reading this and thinking “Yeah, but we’re only talking about 3% or 4% a year. What’s a few percentage points between friends?”
Now do you see why you need to pay such close attention to the fees you’re being charged? This one crucial factor might make all the difference between poverty and comfort, misery and joy.
“The corrosive power of fine print and buried fees can eat away like a chronic illness at a person’s savings.”
Some 401(k) providers do offer index funds to smaller plans, but they typically charge a significant markup. One major insurance company is offering an S&P 500 index fund for 1.68% annually, when the actual cost is just 0.05%. That’s a 3,260% markup! Think of it this way: your friend buys a Honda Accord for the regular retail price of $22,000. But you’re forced to pay a 3,260% markup. Your cost for the exact same car: $717,200! Welcome to the world of high finance.
After much investigation, I was introduced by a friend to Tom Zgainer, CEO of a company called America’s Best 401k (ABk).
I was so impressed that I referred many other friends to ABk. To my delight, they were all thrilled. No wonder. Tom’s firm saves his average client more than 57% in fees!
Whether you are a business owner or an employee, you can see how your company’s 401(k) plan stacks up by using his free online Fee Checker tool at www.ShowMeTheFees.com. It will analyze your plan and calculate within seconds how much you’re being charged in fees.
Regardless of the title, what you really need to know is that 90% of the roughly 310,000 financial advisors in America are actually just brokers. In other words, they’re paid to sell financial products to customers like you and me in return for a fee.
Does this mean they’re dishonest? Not at all. But it does mean they’re working for the house. And remember: the house always wins.
the best financial advisors can add extraordinary value by helping you with everything from investing, to taxes, to insurance.
The grand total: 3.75% of added value! That’s more than three times what a sophisticated advisor would charge. And heck, that doesn’t include reducing taxes and more.
In reality, all financial advisors fall into just one of three categories. What you really need to know is whether your advisor is: • a broker, • an independent advisor, or • a dually registered advisor.
As I mentioned earlier, about 90% of all financial advisors in America are brokers, regardless of the title on their business card. They’re paid a fee or commission for selling products.
Brokers don’t have to recommend the best product for you.
they must simply believe that any recommendations they make are “suitable” for their clients. Suitability is an extremely low bar to clear.
no matter how much you may like your broker, “Your broker is not your friend.”
Of 308,937 financial advisors in the United States, only 31,000—approximately 10%—are registered investment advisorsIV (also known as RIAs or independent advisors). Like doctors and lawyers, they have a fiduciary duty and a legal obligation to act in their clients’ best interests at all times.
RIAs don’t accept sales commissions. Instead, they typically charge a flat fee for financial advice, or a percentage of their clients’ assets under management. It’s a cleaner model that removes awkward conflicts of interest.
Here’s the problem: the vast majority of independent advisors are registered as both fiduciaries and brokers. WTF?!
What’s the moral? If it walks like a duck and talks like a duck, it’s probably a duck. Or a broker.
First, Check Out the Advisor’s Credentials. You need to make sure that the person, or someone on her team, has the right qualifications for the job you need done.
make sure the advisor has a certified financial planner (CFP) on the team.
What you really need is someone who can help you as the years go by to grow your overall wealth by showing you how to save money on your mortgage, insurance, taxes, and so on—someone who can also help you to design and protect your legacy.
Next, You Want to Make Sure Your Advisor Has Experience in Working with People Just Like You.
It’s Also Important to Make Sure That You and Your Advisor Are Aligned Philosophically.
Finally, It’s Important to Find an Advisor You Can Relate to on a Personal Level. A good advisor will be a partner and ally for many years, guiding you on a long-distance financial journey.
For many people, nothing has a more positive impact on their financial future than partnering with an intelligent guide who knows the territory and can show them proven ways to win in any environment.
Creative Planning, the registered investment advisory firm run by my coauthor, Peter Mallouk, provides conflict-free investment advice that is also remarkably comprehensive.
The cost? Less than 1% annually (on average) for this entire team of experts.
This custodial system also protects you from the danger of getting fleeced by a con man like Bernie Madoff.
the most successful people in any field aren’t just lucky. They have a different set of beliefs. They have a different strategy. They do things differently than everyone else.
