Don’t Fall for This Investment Hoax
What is the greatest investment financial scam? And what are you going to do about it?
Today, most investors invest in actively managed mutual funds in their IRA or 401(k) plan. And most of the time, the investor thinks they have the best investments available. Unfortuately, that couldn’t be further from the truth. Active management is probably the biggest danger that can destroy your wealth. Investors believe that by picking the right manager, who has the ability to pick the best stocks and bonds, they can get above average returns. The fact of the matter is that active managers possess no such skill in adding premium, or additional return, to your portfolio.
IFA Advisors did a study comparing actively managed mutual funds to their respective benchmark. The results are shocking! Over the last 10 year period, only a sliver of a fraction of a sliver of active managers provided any real value to the investor (see chart below). What are the chances that an investor could identify these managers in advance? The answer in ‘none.’ As the chart looks at the major asset classes, it is apparent money managers do not any value (as evident by the green pie sliver), yet investors continue to invest with them. Investors continue to fall for the biggest trap on Wall Street.
A study by Dalbar, which analyses investor behavior, identifies some other major concerns. Over the last 20 years, the S&P500, and index of the 500 largest companies, returned an annual average of 9.14%. A very simple strategy to follow and the investor would have reaped a large return. But according to Dalbar, the average stock investor over the same time period achieved a return of just 3.83%! That’s almost a 6% underperformance of the index!
The two main factors that destroy an investors wealth are using active management and bad investor behavior. I call this the “investor penalty.” It’s real, and it’s serious. Investors continue to penalize themselves at an alarming rate.
There is a solution: Your best defense against gambling your wealth away is to fire your broker and hire a Coach! You can harness the power of the Free Markets, laser focus your opportunities, and capture the commonly ignored, wealth boosting elements of the market!