Opinion: Investments in a rut? Maybe it’s the Wall Street industrial complex.

The Wall Street establishment doesn’t want you reading this article, so let me tell you why.

There are many possible reasons why you are an investor and you are not getting all the returns you expect. Perhaps the biggest problem is that Wall Street likes it.

Giants such as Goldman Sachs, BlackRock, Morgan Stanley and JP Morgan Chase regularly generate billions of dollars in annual profits.

From your perspective, the return you achieve is equal to what’s left after Wall Street cuts in the form of expenses, sales commissions, hidden costs, etc.

But from Wall Street’s perspective, the more you own, the more brokers, traders, salespeople, marketers, advertising agencies, executives, corporate jets, sales incentives, and other trading “essential” tools. less is left for

Yes, the stock market as a whole had a miserable time last year. It’s not the fault of investment banks, insurance companies, brokerage firms, financial media, mutual fund firms, independent advisors, and the various online professionals and services that collectively make up what I call Wall Street.

This industry does not let the market go up and down.

But Wall Street is full of conflicts of interest, full of smiling people who will do virtually anything to attract assets they can manage.

beat the market

Once they have our money, their greatest hope is to convince us that they can beat the market and help us “do better than the rest.” If they can do that, they’ll probably keep our business and get referrals too. Not advertising is ironic and unfair (and heartbreakingly expensive for millions of investors).

Index funds as we know them today offer an easy and inexpensive way for individuals to own a piece of everything on the ‘market’.

But from Wall Street’s perspective, index funds have a serious problem.

To keep investors away from index funds, Wall Street promotes recent performance, capable managers, and expensive, risky products that, in theory, could yield high returns for investors. Advisors are guaranteed to generate significant short-term sales commissions. company that produces them.

All these costs can easily exceed 2% per year. For many investors, this could amount to millions of dollars in their lifetime.

recent performance

If your job is to sell investment products and collect assets managed by your employer, the surest and easiest way to success is to focus on recent performance in your sales presentations.

Customers want to connect with winners. And if a particular fund has outperformed its peers in the last 10 years, calendar year, or 6 months (salespeople can choose the data they think is the most impressive), they should know what their customers are looking for. You have found it.

Is it the best choice for them? Well, that’s not really your problem, is it?

But if you’re an investor, listen to Vanguard founder John Bogle. He wrote that buying a fund based solely on its past performance, especially recent performance, is one of the stupidest things an investor can do, he writes. ”

get smart

Like I said, Wall Street won’t be happy you’re reading this. It describes how we’re taught to trick investors while barely protecting them. Read your free copy here.

It is natural to assume that this is not the case for your own advisor. After all, successful salespeople, including brokers, are usually polite, courteous, and likeable.

However, the people you work with do not work in isolation. They are part of a highly organized and sophisticated industry, trapped in a system that works against their clients in many ways.

My criticism is directed at the system, not at the individuals who have found themselves able to make a living within it.

In the chapter, “Sales Pressure Misleading,” I described one of the main drivers of the entire business. How much peace of mind can you get from a healthcare system that pays doctors a fee for every prescription they write? It is purposeless and can lead to account churn. They also prefer high-risk, high-fee products. I spoke with a broker at a company underwriting an initial public offering that they thought was too risky for their clients.

When he complained that he had to sell his allotted shares, his boss told him that if he didn’t sell, he would have to buy anything himself.

conflict of interest

The book also explained how an insurance company representative invited me to help create a new investment. When I protested that his proposal would be too expensive and would be a bad choice for investors, he replied: A salesperson will sell you anything if you pay enough commission for something. ”

I missed that opportunity.

not all is lost

Most, if not all, can be avoided. But for that, you have to be in charge of investing. Your best bet is to educate yourself as much as possible, maintain reasonable expectations, and do the right thing:

· Keep costs and portfolio turnover low.

· Diversify on a large scale.

· Don’t try to beat the market.

・Pay attention to taxes.

Finally, when using an investment advisor, choose someone who has legal fiduciary duty and is responsible for resolving conflicts of interest.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are authors of “We’re Talking Millions!”12 Easy Ways to Enhance Your Retirement Life”. Get your free copy.

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