The foolishness of this investment system

"Each day, each month, each year. 1 more, 1000 more, a Million more investors will gradually learn the foolishness of this investment system and will start looking after themselves." -John Bogle, Founder and Former CEO, The Vanguard Group.

After losing over 35% of my 401k, I started doing research and looking for ways to safely grow my money. I didn't want to be counted among the many I speak with each day that have lost decades of saved money and time to the Wall Street Casino. I work too hard for my money to gamble it away. For the last 4+ years I have helped people save and prepare for retirement with safe tools like Life Insurance, Annuities, Market Linked CD's and Life Settlements. I have personally grown my money in these tools and have done extensive research to know how to use them to my advantage and to my clients advantage.

Recently I have been studying Mutual Funds and the history of the stock market. I have been fascinated with the open candor of John Bogle, Former CEO of The Vanguard Group, now that he has retired. Most of my talking points in the post will be from interviews, articles and books he has published. I think he is a brilliant man and has some incredible insiders wisdom we could all learn from.

There are many interviews with John on Youtube and he has written several books and articles. Watch the video above and I'll bet you get the sense that the investor is getting the short end of the stick. Since retiring he has become a huge advocate for protecting consumers from Wall Street. I would like to share some of his best quotes and them comment on them.

"One problem today is you can't predict returns in the market with any accuracy. What you can control is the risk you take and the cost or fees associated with the investment. Controlling this will be the secret to success in the coming decades."

"Cost is huge. Learn how to run a compound interest table at 8% and run it out 50 years. Then take a 5.5% return and run it out 50 years. It's not unheard of to have a 2.5% fee. What you will find is that you put up 100% of the Capital and take 100% of the risk. Why on Earth would you shoulder all the risk and then let the manager keep 75% of the reward?"

This last comment really hit me right between the eyes. I couldn't figure out how he came up with the numbers based off 2.5% fees until I took his advice and ran a 50 year scenario. I was shocked by what I found. See the numbers I ran.

8% over 50 years assuming no fees.

5.5% over 50 years assuming I paid 2.5% in fees.

So with my calculations you actually only get 31% of the winnings in the investment and the managers get the other 69%. This is assuming you had no losses, in which case you could end up with less and they still take their management fees. Its no wonder they get nicer and nicer building and we get the same old houses. Why should I walk away from this relationship with $1,454,196 and the Broker walk away with $3,235,965 if it was my money that made it happen? Yet we allow it to happen everyday.

"Lets talk about real returns for a minute. Lets say you were lucky enough to get a 6% return. Thats great but if you have a 2% fee then you really only got a 4%. Then of course you have to look at the Consumer Price Index or Inflation at 3%, so really you only got 1%. OK well at least you got 1% right? But then you also have to pay taxes. You can see how easily someone could end up with a 0-1% return and really not be making any money. However, the Mutual Fund go their money."

"There is too much Salesmanship and not enough stewardship. We need to cut way back on speculation and focus more on investment. We need to address ownership of your investment verses loanership. People are just loaning their money and not taking ownership."

I'd like to end off by addressing the idea of ownership verses loanership. So much money is lost in trading, speculating and moving money from one fund to another. Warren Buffet says, "if you wouldn't hold an investment for 10 years then you shouldn't own it for 10 minutes." I have met several millionaires in my life and I have found that most of them made their money in Real Estate. That is an investment where you really take ownership of the place you put your money.

How often are people looking for the next big thing so they can put their money into it for a short time and get a big return? Now a days is seems we want something for nothing and all this speculating is getting people nothing for something. That something being your hard earned money. Day in and day out I speak with people that have lost decades worth of time and money because of the market. This is time they will never get back.

There are investments available that still get very good returns. They require time and taking ownership and accountability for your money. They are not get rich quick schemes, but they are also not risk the farm scenarios either. At what point do you take ownership for your money and make sure it is working hard for you? Its easy to blame your broker when you have turned a blind eye to your own money.

Some sage wisdom from my favorite Savings and Investings book ever, The Richest Man in Babylon. He has the 5 laws of Gold. I am going to substitute Gold for Money since we use money to purchase and invest with these days.

The First Law of Money:
Money cometh gladly and in increasing quantity to any man who will put no less than 10% of his earnings to create an estate for his future and that of his family. (Save 10% no matter what. A portion of all you earn is yours to keep.)

The Second Law of Money:
Money laboreth diligently and contentedly for the wise owner who finds for it profitable employment, mutliplying even as the fields. (Find a good safe home for your money and make sure it is working.)

The Third Law of Money:
Money clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling. ( You could also point out that money flees from a careless owner. Make sure you are putting your money in smart investments. Not just flashy brochures and suits.)

The Fourth Law of Money:
Money slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep. (If the investment is not something you can't understand, don't invest in it. If the people managing your money are not qualified to handle your money, don't leave it with them.)

The Fifth Law of Money:
Money flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trust it to his own inexperience and romantic desires in investment. (Today many people say or promise you will get X% return on your money, but have no plan or way of getting to that number except hope. Bernie Madoff promised returns so high that no one questions or cared to understand how he did it. They just through money at him.)

I just want to reiterate John Bogle's quote from above. "One problem today is you can't predict returns in the market with any accuracy." Wall Street has become a casino where the house wins and the vast majority of people walk away empty handed. At least Las Vegas is entertaining!

To learn about investments that are safely earning 5-16%, have a tracked record to prove it and can show you how they get to those numbers, contact me and lets talk about how they work and why they are able to claim those kind of returns in such an unstable time in history.

Cheers,

Stephen Gardner
888-638-0080