Thursday, July 2, 2009

Wealth Without Wall Street

Wealth Without Wall Street

“Wall Street's world turned upside down”
These were the headlines in 2009.
Wall Street financial management has proven itself worthless. Bill Gross was right. “Professional money management is a gigantic rip-off.” Only 2 advisors provided their clients with the correct advice about the total collapse of the market in 2008-9. In one year, most money management clients have seen their accounts plunge 40%, 50% even 70%. No advisor has fired him/herself. No advisor has returned their advisory fees and commissions. In fact, most advisors hid from their clients during the worst of the storm, as acknowledged by Fidelity executives in May 2009.

The naked truth—YOU must build wealth without Wall Street.

What to do?

Look at Wall Street “turned upside down.”

First, when money managers buy and sell securities in their mutual and hedge funds, they are trying to predict the future of the market. There is no proof this can be done over time. Yesterday’s winners are usually tomorrow’s losers. The AVERAGE market return has been 12%, so a few managers will beat the average by luck—Just not the same ones every year.
Second, you must pay the costs of the manager, her/his marketing group and operations, whether or not s/he makes you a dime. It is always better to pay as little as possible for the same performance over the long term. Costs can take up to 33% of your returns, over time. Investors averaged only 2.57% annually from 1984 through 2002 despite buying the ‘winners’ at the top.
Third, managers are paid for increasing “ASSETS under management,” not for making you rich. Bringing in more assets is a full-time job. It is expensive to market the funds given that there are now thousands available. It is inevitable that popular funds will grow until they produce average returns with high expenses. Managers want to be rich, not right. It takes luck to pick successful stocks. You do not benefit from economies of scale. As assets grow, fees do NOT shrink.
Fourth, there is much less chance of you being treated poorly by fund management if the structure and governance are customer-oriented like Vanguard’s and TIAA-CREF’s are.
Fifth, many professional managers and Wall Street “insiders” place their core assets in index funds. As bond guru, Bill Gross, said, “professional money management is a gigantic rip-off.”
Sixth, since no manager can consistently beat the market, a mutual fund or hedge fund for that matter, must be evaluated as a commodity. Commodities are usually judged on price. As Benjamin Graham, legendary value investor, said, “Investors should purchase stocks like they purchase groceries—not like they purchase perfume.” Actually, all financial services should be purchased this way—insurance, mortgage, credit, banking.
Seventh, due to changes in access and technology, some manufacturers of financial services and products have decided to enhance their direct to customer channel. Even though Vanguard funds have not been sold by personal selling, it has grown to rival most fund complexes. Discount brokers are now considered to have better customer service than brokerage firm services, according to Consumer Reports. Even though Progressive Insurance is sold by agents, their success in the direct channel has been impressive.
Eighth, Wall Street cannot reduce the risk of investing. Most individual investors have lost 30% to 50% of their life savings in the last Wall Street bubble. Many investors now realize that Wall Street is selling snake oil. Even the promise of diversification has left many realizing that “experts” can’t control risk.
Ninth, Wall Street used to control price—raising the price of investing to grow revenue directly lowers investor returns. The advisor or fund with the highest price does NOT guarantee success: only expenses to investors.

Investors can now control the price. We can use low-cost mutual funds and brokers. Since Wall Street cannot predict the markets and we don’t know if stocks will outperform all other assets over time, we must take the Pascal wager:

Pascal’s wager: The consequences of not being in the markets are worse than being in it for the long haul. Buying the market returns at the lowest price is the best solution for long-term wealth-building. You are better off without “professional” advice.

Example: Member Ron Delaney of New York will gain $400,000 because he asked about his 401k plan. Mutual fund fees are the largest source of overcharges—$400,000—over time. Ron did not believe pension costs were as high as we said. He asked his HR person about the costs of his 401K plan. He received a packet of materials. Finally, he calculated that his annual expenses were 2.1% and his annual fee was $50. His plan offered index funds for just 0.70%. He picked which funds he needed after reading our FREE Guide*. Ron saved $2,800 ($4200-$1400) every year. By the time Ron retires, he may have added an extra $400,000 to his 401k.

Your choice is clear—avoid Wall Street. Their “advice” is just marketing hype. Their research exists to sell their products. Take the advice of unbiased advisors like master investor Warren Buffett,

By periodically investing in an index fund, for example, the know-
nothing investor can actually out-perform most investment
professionals. Paradoxically, when "dumb" money acknowledges its
limitations, it ceases to be dumb.


Friday, June 12, 2009

There are two ways to buy financial services in the 21st century

There are two ways to buy financial services in the 21st century

One of my members bought life insurance from the large insurer (Mascot is a dog) before he asked me for help. Frank bought their insurance because the agent said the company is the best. She said, “It is large and will always be there to pay the benefit.” However, is it worth paying an extra $17,970 on your level term policy? There are customer-focused insurers, rated A+, the same as It, charging $384 vs. It’s $983 for the same $300,000 30-year term policy. Frank was wasting $17,970! After reading our Insider’s Guide to Life Insurance, Frank purchased the $384 policy. Investing his savings of $599 ($983-$384) in his Wealth Reserve for 30 years in a market index, Frank may have an extra $175,000 for HIS dreams not the insurers.
In the 21st century, there are two ways to buy financial services—the consumer way and the independent’s way. Financially independent people don’t let themselves be sold. They shop for value in everything. They never pay retail. They shop at Costco. They buy used luxury cars. They wait for sales on electronics. They use the Internet to research the price.
Buying vehicles is one of the largest expenses in most people’s lives. Over our lifetimes, we may spend $250,000 or more. Unfortunately, most people take the consumer way and spend 4 to 5 times what they need to for vehicles. One of our members, Denise, bought a car before I met her. Joy bought her car after she read The Insider’s Guide to Vehicle Purchase.
Consumers’ way. Denise took a loan for the full amount of the price. During the paperwork process with the F&I person (finance and insurance), she was persuaded that the gap insurance and window glass etching options were good buys. Instead of getting a lower price, Denise assumed that an extra $25 a month was no big deal. This was the deal she finally agreed to:
Total borrowing: $25,000 @ 16% for 72 months (her FICO score is 610)

Monthly payment: $542.30 Total payments: $39,045.60
Total interest: $14,045.31 Final residual value: $5,000

Denise spent almost $40,000 for an asset that has little value after 6 years. During those 6 years, she could have accumulated a Wealth Reserve of $57,352.04 on the $542.30 monthly payments. Thus, buying the vehicle on time actually cost her $40,000 plus $57,000 she could have had by investing the payments. The car cost almost $100,000.
The real cost of buying a new vehicle is FOUR times the price--Not a great deal.
Independents’ way. Joy had been buying “assets that grow by themselves” with $500 a month for some time. She had been growing her Wealth Reserve. She started her Wealth Reserve by using our FREE Guide at
Independents use their Wealth Reserve balance for all their financial needs. Thus, their Wealth Reserve can earn 10% to 12% over time in stock and bond mutual funds. They can ‘borrow’ $25,000 from their own Reserve or ‘bank’ and pay themselves back by continuing to invest $500 for the 6 years. Joy pays monthly like Denise but to a different account. The $14,045 interest that Denise pays to another bank, Joy compounds in her own ‘bank.’ Joy accumulates about $53,000 during the six years—replacing the $25,000 she ‘borrowed’ to buy her vehicle. The vehicle is still worth only $5,000 but Joy has grown her Reserve by $28,000. Also, because Joy paid cash for a used luxury car, she probably got a lot more vehicle than Denise got for her borrowed $25,000.
As you guessed, the Independents’ way is how financially independent people stay wealthy. They paid their own “bank” and got the car and the extra $28,000 for the same $500 expense.
You can build your Wealth Reserve with savings from each Insider's Guides for: Vehicle Insurance . . save up to $6,000 over 10 years; Homeowner’s Insurance . . . $2,000 over 10 years; Life Insurance . . . $20,000 over 20 years; Lawsuit Insurance . . . $3,000 over 10 years; Health Insurance . . . $5,000 over 10 years; Disability Insurance . . . $5,000 over 10 years; Long Term Care . . . $40,000 over 20 years; Education Funding . . . $20,000 over 18 years; Retirement Spending . . . $1,000s over 30 years; Banking . . . $3,000 each year; Annuities . . . $20,000 in 20 years; Mutual Funds/Securities . . . $3,000 each year; Spending Plan: Reach every goal; Self-Funded 'Bank' . . . $250,000 in 15 years; Vehicle Purchase . . . $10,000 per vehicle; Mortgage Purchase . . . $3,000 per contract; Wealth Reserve . . . $1,000,000 in 25 years; Wealth Transfer . . . $20,000 in 10 years; Living Insurance . . . $120,000 over 20 years; Self-insurance . . . $20,000 over 20 years; Avoid buying 101 products that waste your money.
You can save $3,000 every year by buying the Independents’ way. Shop for financials just like you do groceries. Your agent, banker, broker, money manager and advisor do already.

Monday, February 2, 2009

Do Washington elites pay taxes?

What happens when the representatives we put our trust in go to Washington? Is it the water? Is the air contaminated from the swamp gases that trickle up through the cracks in Washington’s mausoleum-type buildings?
Obama’s victory made Americans feel that America might again stand for equal and fair treatment. I thought for a brief moment that after the election-night speech in a Chicago public forum, we might be on the right track back to feeling pride in our country’s leaders.
To me, and many Americans, the election of Obama represented a moral re-awakening of America. In my naïveté, I thought that we had seen the end of the DOUBLE standard. There is one standard for the political elites and another standard for the people who pay their salaries.
Obama or his staff has nominated one, Tim Geithner, for Treasury. This position involves honest dealings in crucial financial matters. To the world and to my fellow taxpayers, this guy should be Mr Clean. He should symbolize the most honest and fair way of handling financial matters. He should also know his subject matter.
The public face that is presented about this candidate is that he is wealthy and knowledgable about financial matters. We are told that Obama aides “said they didn't think these issues would present a problem, given what they characterized as the minor nature of the infractions.” Only in Washington is not paying taxes, twice (even after an audit), a “minor infraction.”
We are being told that if you get caught not paying taxes, not once but twice, it is OK if your “mistakes weren't intentional” and you are “contrite.” Instead of dealing with this matter openly, with the “transparency” Obama promised, our representatives take the wealthy tax cheat into a room closed to the public and press. For most Americans, public humiliation is part of the mia culpa. Not for the elites.
The specifics of how a wealthy knowledgable financial guy and his accountant can cheat we fellow taxpayers can be read in the press. It is just hard to believe that you and I would not end up in court after failing to understand that we must pay Social Security and Medicare taxes, even after we were caught once. Even if the future head of the IRS doesn’t know it, his tax preparer would know that Americans can’t deduct our child’s camp fees, early-withdrawal penalty from a retirement plan, a charitable-contribution of ineligible items, and utility costs.
Finally, as a knowledgeable and wealthy public servant, it is hard to believe that this guy would employ an immigrant housekeeper whose work-authorization papers had expired. Where was this person during the Clinton administration when we all learned that the wealthy keep illegal immigrants so they can pay less.
Would most Americans just assume they could get away with this kind of dishonesty? It is not a matter of degree. Yes, I agree the nominee is not a mass murderer. However, if Obama and our representatives support a nominee engaged in illegal acts, aren’t we continuing the same history as Bush and other elites: election by court order, evesdropping without court order, torture by any other name, intentional deception to make war, welfare for the wealthy, indescriminate spending, and poor judgement. Change was the keynote to Obama’s message. We want change. We don’t want the old DOUBLE standard that seems to infiltrate the hearts and minds of our representatives and Washington functionaries. We don’t want the morally suspect decision-making process that characterizes normal Washington activity. We don’t want “business as usual.” We don’t want “government by crisis,” when checks and balances (common sense) are put aside in the name of expediency. We want integrity back in government. Rewarding bad behavior in anyone (no matter how wealthy or knowledgeable) is the kind of activity we wanted Obama’s CHANGE to change.
Now another Obama nominee, Daschle, didn’t pay his taxes. This is the third person “too important to pay taxes” that Obama has put up. Where is the CHANGE we were promised. This is the old boy network again. Geithner, the new head of the IRS, was confirmed after deliberately avoiding his tax obligations. What does this say about our Congress? Obama continues to ignore breeches of character. Perhaps Congress people think it is OK not to pay because they don’t pay either.
Do any Washington elites pay taxes? Why am I paying taxes this month?

Friday, January 23, 2009

We are wasting $3,000 a year on financial products

"Most Americans are wasting over $3,000 per year on the financial services they own." According to a new survey, we are wasting $500 on car insurance, $500 on life insurance, and $2,500 on mutual funds/securities. That could mean an extra $250,000 in 20 years! $700,000 in 30 years!
Most people I have talked to believe that you can’t have enough insurance. They don’t understand that you should insure only what you can’t afford to lose. For instance, for car and home insurance, you are better off picking a high deductible to save up to 40% of the cost of a policy. Claims are infrequent—every 11 or 12 years—so you are more than likely to earn interest on the premiums you save year after year.
Insurance is not an item our moms taught us to buy. Who wants to spend their time comparing coverages? Who wants to meet with an insurance agent? This thinking has changed. Insurance and financial services in general have become commodities, like groceries.
With the Internet and new product pricing, you can actually find a huge difference in costs. Depending on your lifestyle profile and the insurer’s marketing plan, you could pay $3600 or $1400 for the same two-vehicle coverage. The difference—$2200—could accumulate to over $150,000 in 20 years. Both insurers are highly rated and responsive.
The differences in price are significant across almost every type of coverage—life, health, long-term care, accident, disability, and excess liability. See the amount of savings by type at
The options you pick, but don’t need, can significantly change the price. For each type of insurance, you need the guidance of an unbiased advisor—someone who does not profit from your choices. There are 20 to 30 discounts available. To buy wisely, you must know what you need.
Money management is the area with the greatest savings. Many of us pay over $2,000 a year needlessly. When you read the advice of the most well- respected industry practitioners—Warren Buffett and Bill Gross—you learn that “money management is a gigantic rip-off.” There is little correlation between what you pay in commissions, fees, and spreads, and the after tax returns you end up with over time. A low-cost index fund is best for most investors, Buffett said. Thus, most of us are giving away 1%-2% of our pensions and mutual fund balances—3%-4% when inside annuities. That $2,000 drain on each $100,000 every year reduces your eventual spending power by up to $700,000.