By Al Jacobs
Imagine a sober-minded young couple with a manageable home mortgage, no credit card debt, assets consisting of mutual funds, stocks and bank accounts, and an ability to transfer a meaningful portion of annual earnings to long-term investment. Despite discipline and diligence, things are not going well. Though they manage to save about 22 percent of the husband’s $54,000 yearly take-home pay, their portfolio, valued at $145,000, has experienced only a modest growth over the past several years. They fear that a combination of high fees and mediocre funds, coupled with an uncertain stock market, is to blame.
The problem this couple faces is endemic to our nation’s aspiring investors. The simple fact is that for most persons seeking sound and profitable avenues for their investment dollars, there is no place to turn. I contend that every sector of the investment industry operates to maximize its profit at the expense of the investor. The most sought-after arena of public involvement, the mutual fund industry, operates primarily as a device to systematically skim a portion of a fund’s assets, irrespective of performance. The vast majority, now numbering more than 15,000, operate with relative indifference to investor return. They are mostly an exercise in pure marketing.
At an earlier time, your bank’s FDIC money market accounts produced fair revenue. Today it’s tough to get one-half percent annually—though most banks aren’t ashamed to charge you over 20 percent on credit card cash advances. A bank’s only value is as a place to park funds while awaiting a better use for the money.
As a last resort, many persons turn to a financial advisor. The competent advisors are rarely available to persons with investment assets less than several million dollars. The rest—the vast majority—are not actually in the advisory business, but rather in the fee collection business. This explains why so many portfolios contain badly performing stocks, lackluster funds, high-priced annuities and other debris. You’re better off at a casino.
So what to do? You must direct your own investment program. Thoroughly investigate whatever fields you choose to pursue. Accept advice only from persons who do not profit from their counsel. Move slowly and cautiously into any endeavor. And above all, be certain you really know what you’re doing.
Al Jacobs, a professional investor for nearly a half-century, distributes a monthly newsletter in which he shares his financial knowledge and experience. You may sign up for it at www.onthemoneytrail.net.
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