Who or what is this bad, ugly beast called “Wall Street?”
When we blame it for all financial woes, who are we blaming? Goldman Sachs? Warren Buffett (he owns a lot of Goldman)? Is Wall Street your life insurance company, credit card companies, mutual funds, brokers, banks, and investment banks? All or some?
The fact is, none of us are sure and it doesn’t matter because we don’t have much power over this ominous Wall Street — whatever it is. But there is a Wall Street that we, as individuals can prevent from damaging us.
Wall Street is like a giant casino
The veil over how Wall Street works is slowly being lifted. Wall Street’s real mission isn’t to help you make what the markets return, rather it’s to keep your money in their control so they can use it to take some of those returns for themselves. No wonder Wall Street wages a constant propaganda machine to convince you that brokers can help you beat the House. But if you believe their message, you are simply being duped.
As in a casino, no one really beats the House because the odds are stacked in favor of the casino — an Investing 101 concept oftentimes ignored. Even if someone does win big on occasion, the odds eventually catch up and the winner will lose.
Most financial institutions want to control our money, which in turn, gives them a unique opportunity to bill us through fees that we don’t see or worse, don’t understand. Because we’re not writing checks for these fees, we tend not to pay attention as our money flows out of our pockets and into theirs. And that’s where the trouble starts!
Put $25,000 into a mutual fund and you’re hiring a Wall Street stock picker and paying him around $400 per year. He and his fund now control your money. Hire a financial adviser or a broker to manage your account of $100,000 and you may pay $2,000 plus for that privilege – there you go again!
And, anywhere from 30% to 50% of your investment nest egg will disappear in fees, taxes and underperformance. Wall Street now controls your money. (Rebuild your wealth with this free report, Retirement Recovery).
Flexing its muscle to keep you at the table
Look at all the media attention that Wall Street buys in an effort to keep you at the table. Think about all the newspaper ads and fund prospectuses boasting stellar returns. Consider the relentless flow of guests on financial programs and websites touting their stock-picking expertise. Add to that the millions of dollars spent on investment magazines, financial newsletters and other efforts to keep Wall Street in your face.
It’s all about keeping your money-and keeping you convinced that you can beat the House. Wall Street wants disempowered investors. They want to make sure beginners as well as the average investor see investing as complicated, confusing and something to be handled only by “experts.”
By convincing you not to take on added risk by doing it yourself, they keep their hands on your money and stay profitable.
A recent Wall Street Journal story by Jason Zweig reports that an investor, Philip Eberlin, reportedly put 80% of his assets in CDs and fixed annuities because: “I don’t have trust in Wall Street to help the small investor in any way, shape or form.” (Discover how the wealthy really invest using asset allocation and periodic rebalancing).
But here’s where Mr. Eberlin has it wrong — it’s investing 101. If I buy an ETF of 1,500 US companies, I own a part of all of them – IBM, Coke, Disney and Microsoft. There’s no Wall Street. A broker may hold my security, but they’re not charging me to invest. I own great businesses, and my distrust of Wall Street should have no bearing on my decision to do so.
ETFs and index funds charge .25% for computer generated “baskets” of stocks that index and track specific markets. Your investment nest egg grows as well as the markets. If assets are allocated properly, there’s a natural safety net built into the portfolio and it steadily grows without the fees, taxes and charges.
Buying low cost ETFs according to a prudent asset allocation, takes Wall Street’s hand out of your pocket. You’re in control of your own money.
Change is in the air
It used to be John Bogle and Vanguard were one of the few lone voices from Wall Street who advocated low-cost, indexing style investing. Today, that chorus is getting louder.
When you trade Schwab ETFs or now iShares ETFs at Fidelity – you pay no commissions. This lowers the cost of implementing an all ETF portfolio that is periodically rebalanced. Schwab and Fidelity will also manage your ETF portfolio for you for about .6%. While not as cheap as doing it yourself, it validates the investing 101 approach that individual investors should use low-cost ETFs to construct a portfolio and build real wealth. Go Schwab and Fidelity!
In the coming years, these trends will reduce Wall Street’s fees which will in turn, weaken its grip over Americans and their money. We hope you’re riding these trends. (Find out how you can use low-cost ETFs to build real wealth in your own portfolio here).