Remember the golden rule: he who has the gold makes the rules. —UNKNOWN
You have to learn the rules of the game, and then you have to play better than anyone else. —ALBERT EINSTEIN
I know that you want to jump right in and learn where to put your money to obtain financial freedom. It’s great that you understand and embrace that the game is truly winnable. But it’s not enough to just save your money, get a great return, and reduce your risk.
You have to know that there are a lot of people looking to take a piece of your wealth. The system is riddled with loopholes—what I would call landmines—that can blow up your financial future.
So, in this blog, we’re going to go through 9 Myths—you might call them lies—that have been marketed to you over the years. And if you aren’t aware of them—if you don’t see them coming—they will systematically destroy your financial future.
In fact, if you have the average American salary of $50,000 per year, and currently save 10% of your income and invest that money over time, you’ll save $250,000 over your investment lifetime.
That’s five years of your current lifestyle, at your current income, without having to work a single day! And that is statistically proven, not a number pulling out of a hat.
If you make only $30,000 per year and save just 5% of your income each year, you’ll still save $150,000 over your investment lifetime.
That’s a half decade’s worth of your current income without having to work for it. If you’re in the $100,000-plus category, this blog could put $500,000 to $1 million back in your pocket over your lifetime.
Sounds like a massive promise, huh!?
I will let the numbers do the talking in the pages ahead. It’s a short section, so pay attention because you’re going to want to take immediate action. By shattering these myths, you will be able to immediately “stop the bleeding” in areas where you never thought you needed to. Knowing these 9 Myths will protect you and insure that you get to the level of financial freedom that you’re truly committed to. Let’s begin!
WELCOME TO THE JUNGLE Whether you are a seasoned investor or just beginning to see yourself as an investor, the jungle that Ray Dalio so vividly described holds the same dangers for all of us. But most of the danger lies in the fact that what you don’t know can hurt you.
THE OFFER I want you to imagine that someone comes to you with the following investment opportunity: he wants you to put up 100% of the capital and take 100% of the risk, and if it makes money, he wants 60% or more of the upside to come to him in fees. Oh, and by the way, if it loses money, you lose, and he still gets paid! Are you in? I’m sure you don’t need any time to think this through. It’s a no-brainer. Your gut response has to be, “There’s no way I’m doing this. How absurd!” The only problem is that if you’re like 90% of American investors, you’ve invested in a typical mutual fund, and, believe it or not, these are the terms to which you’ve already agreed. That’s right, there is $13 trillion in actively managed mutual funds with 265 million account holders around the world. How in the world do you convince 92 million Americans to participate in a strategy where they willingly give up 60% or more of their potential lifetime investment upside with no guaranteed return? To solve this riddle, I sat down with the 85-year-old investment guru Jack Bogle, the founder of Vanguard, whose 64 years on Wall Street have made him uniquely qualified to shed light on this financial phenomenon. His answer? “Marketing! “Tony, it’s simple. Most people don’t do the math, and the fees are hidden. Try this: if you made a onetime investment of $10,000 at age twenty, and, assuming 7% annual growth over time, you would have $574,464 by the time you’re nearly my age [eighty]. But, if you paid 2.5% in total management fees and other expenses, your ending account balance would only be $140,274 over the same period.” “Let’s see if we’ve got this straight: you provided all the capital, you took all the risk, you got to keep $140,274, but you gave up $439,190 to an active manager!? They take 77% of your potential returns? For what?” “Exactly.”
Money Power Principle 1. Don’t get in the game unless you know the rules! Millions of investors worldwide are systematically marketed a set of myths— investment lies—that guide their decision making. This “conventional wisdom” is often designed to keep you in the dark.
When it comes to your money, what you don’t know can—and likely will—hurt you. Ignorance is not bliss. Ignorance is pain, ignorance is struggle, ignorance is giving your fortune away to someone who hasn’t earned it.
It’s not just high-cost mutual funds that are the problem. The example above is just a peek under the sheets at a system designed to separate you from your money. Without exception, every expert I have interviewed for this book (from the top hedge funds managers to Nobel Prize winners) agrees that the game has changed. Our parents didn’t have a fraction of the complexity or dangers to deal with that we have today. Why? They had a pension—a guaranteed income for life! They had CDs that paid conservative but reasonable rates—not the 0.22% you would be paid at the time of this writing, which won’t even keep up with inflation. And some had the privilege of putting small investments into blue-chip stocks that paid steady dividends.
What’s changed? We exchanged our guaranteed retirement pensions with an intentionally complex and often extremely dangerous system, filled with hidden fees, which gave us “freedom of choice.” And somehow, in the midst of working your tail off, providing for your family, staying in shape, and taking care of the important relationships in your life, you are supposed to become an investment professional? You’re supposed to be able to navigate this labyrinth of products, services, and unending risk of your hard-earned money? It’s near impossible. That’s why most people give their money to a “professional,” often a broker. A broker who by definition works for a company that is not required by law to do what’s in your best interest (more on this baffling concept in Myth 4). A broker who gets paid to funnel your money to the products that may be the most profitable for him and/or his firm Now, let me be clear: this is not another bash-WallStreet-book. Many of the large financial institutions have pioneered some extraordinary products that we will explore and advocate throughout this book. And the vast majority of people in the financial services industry care intensely for their clients, and more often than not, they are doing what they believe to be the best thing. Unfortunately, many don’t also understand how the “house” reaps profits whether the client wins or not. They are doing the best they can for their clients with the knowledge (training) and the tools (products) they have been provided. But the system isn’t set up for your broker to have endless options and complete autonomy in finding what’s best for you. And this could prove costly.