Investing and personal finance aren’t complicated, but it seems the financial industry is bent on making us think they are.
Because they stand to make massive amounts of money if we stay in the dark and feel we have to rely on their “expertise” to get us to retirement. By keeping fees, real returns, and our investment options as opaque as possible, millions of us give up, hand over our money, and hope the “professionals” will make our financial dreams a possibility.
There’s a much better way! By following a proven strategy, we can take the power back, avoid the landmines of the financial system, take control of our money, and accumulate wealth, so we can live life on our terms.
We can do this and I’ll show you how!
Throughout this post I’ll uncover the biggest landmines in the investing world and show how they can blow up and devastate our financial dreams. But more importantly, I’ll provide real life, practical solutions, so none of us fall prey or lose any limbs.
Let’s dig in!
Beware of the Landmines
The financial system is riddled with landmines and lies that cost most of us hundreds of thousands of our hard-earned dollars. Here’s a summary of those that hurt the most.
Landmine 1: Mutual Funds Are Costing Us Thousands
Chances are that if you have money saved for retirement, then you own a mutual fund (and yes, the money packaged in your 401(k) is most likely invested in a mutual fund). A mutual fund is a collection of diversified investments that are professionally managed. Here’s how it works—you buy a specific mutual fund and get a professional to manage your money. Sounds sweet, right?
Here’s the problem: Mutual funds are 20 times (2,000%) more expensive than the investment vehicles I recommend. It’s like paying $400 for a shirt when you could have bought the same one down the street for only $20.
These high fees drain our investments of hundreds of thousands of dollars and they prolong our inability to retire. They sap our financial future and can destroy our financial freedom.
Landmine 2: Subpar Investment Performance
Let’s say you and your buddies were holding a racing tournament for remote control cars. Bad example? Maybe, but hear me out. Your friends were looking at $50 models, but since you were ambitious and wanted to win, you weren’t going to settle for anything cheap. You had your eye on something that was 20 times more expensive—a car in the $1,000 range.
Surely the 20 times more expensive car would give you more speed, better performance, and you’d almost always beat your friends to the finish line.
This is the same logic most investors apply when buying mutual funds—since we pay high fees we expect high returns. The thought is completely reasonable.
Here’s where it gets ugly: the average actively managed stock mutual fund returns approximately 2% less per year to its shareholders than the stock market returns in general.
It gets worse: 96% of actively managed mutual funds fail to beat the market over any sustained period of time!
That’s like having your $1,000 remote control beauty consistently get beaten by a $50 piece of junk. I guess the the 20 times cheaper model wasn’t such a pile after all.
It’s possible to generate stronger returns at a much smaller price tag—I’ll show you how. Click here to learn how to beat subpar performing mutual funds at a much lower cost.
Landmine 3: Advertised Returns Aren’t What We Actually Get
Have you ever been sold something and after using it for awhile, you realized it just wasn’t as good as you were told? This is often the case for investors who buy investment products from advisors (aka salesmen) who pitch professionally managed funds.
The advertised returns fund companies and financial advisors pitch are often bloated with manipulation. As an example, let’s look at how the financial industry uses average returns to hide what investors actually earn.
Let’s say you invest $100,000 and the first year your investment goes up 50% to $150,000. And then the second year it goes down 50% to $75,000. Let’s say your returns follow this pattern for the next two years—up 50% and then down 50%. In four years you would have lost 43.75% or $43,750, but that’s not what the fund companies advertise. They say the fund managed an average return of 0% ((50%-50%+50%-50%)/4 = 0%), despite the fact you almost lost half of your money.
That’s because they use arithmetic averages rather than geometric averages. Geometric averages take into account that a 50% decline does more damage than a 50% increase does good.
Arithmetic average returns are mathematically sound but full of marketing manipulation. This is just one of the marketing tactics fund companies use to hide poor performance from investors.
Advertised returns don’t directly hurt our investments, but they do mislead and distract us from putting our money in the best possible funds available.
Landmine 4: 401(k) Plans Are Misused and Misunderstood
401(k) plans may be the most misunderstood and misused tools investors use to save for retirement. Some 401(k) plans are great and others are essentially worthless. Here’s a quick summary of what you need to know.
1. 401(k) Plans Aren’t Free. More often than not, the investment options within a 401(k) plan are more expensive for us than if we bought other investments outside of any plan. Why? Because 90% of 401(k) plans require fund companies to pay a fee to have their fund as an available investment option for the investors, and those fees get passed to us.
Now 67% of us enrolled in a 401(k) plan think there aren’t any fees, but that’s far from the truth. 33% of our investment returns our eaten in fees, and it’s you and me that pay; not our employer; not the government; not the broker signing us up; it’s us! Fund companies and brokers exploit our misunderstanding, and we pay big for it.
2. Investment Options Are Limited. Most 401(k) plans are very limited in the investment options available for investors to choose from. If we get a choice at all, it’s normally between a stock or bond mutual fund or some type of annuity product. The investment options we see are not necessarily the options that are best for us, but rather, they are oftentimes the investment products that are going to make the biggest pockets for the brokers.
3. 401(k) Plans Are Insufficient. Most of us rely on our 401(k) plans as our sole investment vehicles to get us to retirement. This is a bad idea as the average person that contributes to a 401(k) only contributes 3.1% of their income. Contributing such a small amount to such an expensive investment vehicle is a sure-fire way to keep us from ever retiring.
4. 401(k) Plans Are Not the Only Tax Advantaged Retirement Vehicle. This is one of the biggest misunderstandings surrounding 401(k)s. Many people have no idea how to save for retirement outside of using their employer’s 401(k) plan, and if they know it’s a possibility, they are scared to do so because of the tax advantages 401(k)s offer.
But contrary to popular belief, there are other retirement investments that offer the same and oftentimes better tax advantages than can be found in some company sponsored plans. For example, Individual Retirement Accounts (IRAs) offer essentially the same tax benefits as 401(k)s do in saving for retirement.
There are so many different 401(k) plans that it is impossible to give a solution that unanimously fixes all the problems for all of the 401(k) contributors out there. Determining whether or not you should contribute to your 401(k), how much you should contribute, and what investment option to choose depends entirely on your situation and your plan.
In order to help others get the most out of their 401(k) plans, I’ve created The Ultimate Step-By-Step Guide To Making the Most of Your 401(k). This guide provides a framework that will help you know exactly what you need to do with your 401(k) plan. You’ll know exactly how much money to contribute, what investment option to choose, and how to avoid any hidden landmines in your plan.
Landmine 5: The Use of “Experts” When We Invest in the Market
In order to successfully invest and save for retirement, we must know what we’re doing. But rather than take the time to learn, most of us think it’s too hard, so we give up and hire a professional to do it for us. For the most part, this is a costly mistake as the benefit of hiring an “expert” rarely justifies the cost we pay.
Here are the primary factors that tip the scale in favor of investing ourselves rather than hiring someone else to invest our money in the market for us.
1. Conflicting Incentives Between Investor and Professional. Investors want the biggest returns possible for the lowest risk, fees, and taxes around. On the other hand, many financial professionals have a huge compensation incentive to sell investment products that bear high fees and trade often creating high taxes, high costs, and low net returns for us.
2. Financial Professionals Are Expensive. There are several different compensation models for financial advisors, and some are much more expensive than others. Some advisors get paid commissions on the financial products they sell; others charge an annual percentage of the assets you turn over to them to manage; and others charge a fee for their time, which is normally by far the least expensive over time but is still around $120 to $350 an hour.
These costs can all added on top of the already expensive mutual funds the money managers or financial advisors are likely to recommend.
3. Limited Product Offering. Most advisors are only able to recommend certain investment products, and oftentimes, the best investments aren’t even on the table. Maybe that’s why 49% of the mutual fund managers don’t even invest in the fund they manage.They’ll tell everyone and their dog to invest in the fund, yet they fail to do it themselves.
4. Lack of Real Expertise. When we go to professionals for advice, we expect an expert opinion built off of experience, but that’s often not what we get. All the “experts” preach investing and saving for retirement, yet 46% of financial advisors don’t even have a retirement plan. They talk the talk but fail miserably to walk the walk.
5. Same Access to the Same Investments. Generally, we have the same access to the same investments the professional money managers have. When we pay professionals to invest our money, we are essentially paying them hundreds or thousands of dollars to click a few buttons.
Now we do get their advice too, but we’ve already discovered that 96% of the professionals fail to beat the market over a sustained period of time. So maybe their advice isn’t worth that much after all.
6. Investing Yourself is Simple, Inexpensive, and Not Time Consuming. Contrary to what professionals say and what most people think, investing doesn’t have to be complicated, expensive, or time consuming. In fact, the best investments for most people generate stronger returns than professionally managed funds, are extremely inexpensive, are simple to set up, and take very little time to manage. Click here to learn how to make investing simple and inexpensive without consuming much time all while generating better returns than the pros.
Now we are not talking about never using a financial expert of any kind for any reason. There are plenty of financial situations that call for a qualified professional’s help (setting up trusts, tax planning, establishing an overall financial plan, investing in discounted notes, etc.). What we’re talking about is cutting out non-value add costs. There is no reason to waste thousands of dollars paying a “professional” to invest our money in the market (stocks, bonds, target-date funds, etc.) for us.
Most of us save for retirement by putting money in the market, and the vast majority of the time, we are better off running these investments on our own. Trust me, it’s simple and you can do it! It doesn’t take much time and it’s well worth the money saved!
Don’t believe the dogma the financial industry has been cheerleading for years. We no longer need their hands in our pockets running our investments. We can generate better returns by using a simple, proven system that allocates our investments and automates our wealth accumulation.
Note: Not all advisors are going to act on the incentive to recommend the product that makes them the richest. Nor do all advisors charge too much for the value they provide. Some will actually show you the best product for your situation, and others do have actual real-life experience investing. The goal is not to stop using financial professionals, but rather the goal is to maximize our net returns. And generally, that is best attained by investing in the market ourselves and cutting out all unnecessary and non-value add costs.
Landmine 6: Inaction
This is by far the most lethal landmine of all. Our own inaction is the atomic bomb that levels our financial freedom far more than high fees, subpar performance, misguided returns, misusing 401(k) plans, or overpaying financial professionals ever will.
We all know we should take action and invest for our future, but we fail to do so.
When it comes to personal finance and money there are huge psychological roadblocks that prevent us from taking action and investing. See if any of these sound familiar:
- I don’t know how to invest.
- It’s just too complicated.
- I can always start later.
- I’ll invest when I have more money.
- I’ll invest when I have more time.
- I don’t want to lose money.
- I’ll do it one day.
- I’ll learn about investing later.
- I’m just too busy.
- I don’t want to mess up.
- I’ve got to learn all I can before I start.
- If only I wasn’t working so much I’d have the time to invest.
We all have these thoughts, and in part, they are rooted in truth. They all seem to be legitimate excuses, but excuses none the less.
None of us want to admit we lack the discipline to overcome these mental roadblocks, but they get in the way of all of us. We like to think that we can just power through, but time and time again we fail.
The trick is not to try and power through these roadblocks, but rather create and implement a system that will enable us to leap over them. There’s no sense in fighting when we can avoid the conflict altogether.
The correct system will automate our finances, allocate money to each of our goals, invest in our future, enable us to spend money on what we love, and ensure we generate wealth with little time, knowledge, and maintenance required.
Avoid the Landmines & Live Rich
All six of these landmines cost us thousands of dollars, thwart our financial freedom, and prolong our inability to retire, but they can be beat. The link under each of the topics provides a simple solution that can easily be applied and is sure to keep money in our pockets.
Each of the solutions I offer will enable you to live a rich life, and that goes far beyond the numbers that are in your bank account. If you read and apply these principles, you will have a low maintenance financial system that automatically accumulates wealth and enables you to spend lavishly on what you love most.
Most people invest for their future using actively managed mutual funds, which is generally not the best option for the investor.
Mutual Funds Are Expensive: Mutual funds cost us thousands or hundreds of thousands since they are 2,000% more expensive than the better performing investments I recommend. Click here to see how you can beat high-fee mutual funds.
Mutual Funds Don’t Beat the Market: 96% of mutual funds fail to beat the market over any sustained period, and on average, they return 2% per year less to shareholders. Click here to learn how to beat subpar performing mutual funds at a much lower cost.
Advertised Returns Aren’t What Investors Earn: Advertised returns are plagued with marketing manipulation that lures us into inferior investments and can blind us from our own investments’ poor performance.
401(k)s are Misunderstood & Misused: Some 401(k) plans are great but others aren’t. Bad plans have high fees, a limited amount of options, and poor benefits. Good plans have low fees, strong investment options, and nice benefits. Click here for The Ultimate Step-By-Step Guide To Getting the Most Out of Your 401(k).
The Benefit of “Experts” in Our Investing Isn’t Normally Worth the Cost. Obtaining the help of professionals when we invest in the market isn’t normally worth the cost. Professionals are expensive, can only offer limited investment options, and oftentimes, have incentives that aren’t inline with our own. Investing in the market without professional help is simple, inexpensive, and not time consuming. Click here to learn how to invest in the market without the help of an advisor or a broker.
Our Own Inaction Hurts Our Investments the Most. We kill our financial future by succumbing to the mental roadblocks that dam our investing progress. Rather than fight through these roadblocks, we need to implement a financial system that makes investing automatic, spending entertaining, and money rewarding.
By uncovering and avoiding each of these investing landmines, we can generate significantly more wealth quicker and easier, leading to earlier financial freedom for all of us.
Click on the links below each topic and learn how to uncover and beat the investing landmines!
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