The Stupidest Thing You Can Do With Your Money

The Stupidest Thing You Can Do With Your Money

http://freakonomics.com/podcast/stupidest-money/

This Freakonomics podcast makes the case for index funds over managed funds. Interesting excerpt from Scaramucci, a financial manager before he worked for Trump:

"SCARAMUCCI: It’s really not changing their behavior. What it’s doing is it’s actually limiting the choices for the end user or the end investor. Because if you read the entire rule, which I’ve read, it’s a governmental decision to allocate capital into index funds and E.T.F. funds that the government is deeming those things as being more efficient. They’re more effective in terms of their lower cost analysis and, for the time being, the government is actually right. If you look at the last 5 or 10 years, those funds have performed better and charge less fees than, let’s say, a hedge fund or a private equity firm. But the problem with that analysis is that you’re not taking a 120-year, modern, economic historical analysis of business cycles and stock market trends. You’re really only looking at the last 10 years. The buffet table of investment opportunities for the average user — let’s say, my mom and dad, which I’m super concerned about — gets curtailed. I’m just going to sell you the things that the government wants me to sell you. What will end up happening is everybody will be overloaded in E.T.F.s, they’ll be overloaded in indexes. And when the market crashes — because they will have eliminated many of the financial advisers. You’ll lose 60 to 70,000 financial services jobs as a direct result of that rule. It’s a jobs killer. But what it also does is it fails to recognize the full economic value of a financial adviser. The economic value of a financial adviser is not just the return and the net return, net of the fees, but it’s also the psychological effect and the coaching that that financial adviser provides that family. The rule is bogus, Stephen, and the rule needs to be repealed. The people that really understand the rule know that. By the way, I love my clients, as most financial advisers do. I’m not trying to rip off my clients. I’m not trying to do something that’s dishonest. I’m just trying to increase, continually, their options in terms of what they can invest in."

Translation: Index funds are superior to managed funds, but if we steer unsuspecting mom and pop investors into index funds through the fiduciary rule (which was recently canned by Trump through EO), we'll lose 1000s of jobs in the financial industry, even though those jobs have the net effect of parting investors from their hard-earned money.

Of course, he loves his clients (for sure their money). My guess is that most of his clients don't realize that they would get a better return by investing in index funds without adviser. I would love clients I can easily scam too.

The other interesting stat: Only 2-3% of financial advisers make enough money to even cover their costs. oh boy, this is one messed up industry. And Trump wants to make sure that it stays messed up this way and the fleecing of the middle class continues.

Note in edit: The stupidest thing you can do with your money is paying someone to "manage" it.

 

Are there 0 investors on here? it seems that nobody is interested in discussing the repeal of the fiduciary rule that favors financial managers over consumers.

 

LOL ... yeah, I'll take Scaramucci's opinion on the fiduciary rule (and everything else, for that matter) with a grain of salt.

I'm a HNW investor, by the way, Nerd.

Here's some investing advice from a guy who has 10,000 times the street cred of some republican hack like Scaramucci...

"Consistently buy an S&P 500 low-cost index fund," Warren Buffett told CNBC's On The Money in an interview recently. "I think it's the thing that makes the most sense practically all of the time."

http://www.cnbc.com/2017/05/12/warr...etirement-sense-practically-all-the-time.html


The bulk of my equity holdings are in dirt-cheap index funds, with the largest position in the 500. But I do use a couple of actively-managed sector funds (VGHAX and PRGTX) which represent investing themes that I strongly believe in. These two funds should continue to perform well over time...

 

Well, I am close to HNWI status. Got there through investing in index funds and no market timing.

Did you listen to the whole podcast? John Bogle's opinion is, as always, interesting. It is amazing to actually see the dismal track record of financial advisers. Trump, however, wants to protect their gravy train over the unsuspecting retirement investor, who is afraid to go it alone.

The investment industry is truly one where paying more gives you worse results.

 

Last I checked, the only value financial advisers add is to churn their clients' accounts thus generating income for themselves (the advisers). So yeah, that's thousands of jobs I could certainly live without. The only people who should be hiring money managers are the top 1% who actually have more money than they can realistically keep track of. But these days, it's like when the real estate boom turned every deadbeat knucklehead into a "real estate agent" because houses were basically selling themselves and these d-bags just wanted to insert themselves into the transaction for a little payout. Most financial advisers - most salesmen in general - aren't good at anything other than convincing their victims clients to spend their money.

 

I don't pretend to know all the in's and out's of "index funds" or any of this other sleight-of-hand stock market bullshit. I have avoided all of it. I also avoided any harm of any kind during the "Great Recession" while many others lost their ass.

I had some stock, and some stock options in the corporations I'd worked for. By the end of May 2007 I exercised all my options, sold all my stock, made a nice pile of money, and got completely out of the market. In August of 2007, the Federal Reserve System completely took over the economy of the United States and the "Great Recession" began. Now I'm retired, with all the money I'll need, mostly because I avoided any stupid risks and I SAVED money. Did I become a millionaire? Only just barely.

But you asked what is the stupidest thing you can do with your money? Simple. Buying gold and silver! These would be very good investments, indeed -- BUT -- as I said, the Federal Reserve exercises total control over anything of real importance in the economy. That means it uses every tool it has to flush money out of savings accounts and into the stock market, where it can manipulate everything easily. The Fed hates gold and silver precisely because these precious metals do have "intrinsic" value, unlike the "value" of pieces of paper which it has total control over.

What else is wrong with gold and silver? As Americans have already learned, a hyperliberal Democrat president (also doing the bidding of the Fed) can simply forbid Americans to own gold and silver! It was done already, in 1933, by the great Socialist demi-god, Frankie Roosevelt! He issued an Executive Decree which made it illegal for Americans to own gold -- and that was the end of that!

Even though the Fed has crushed interest rates on savings down to near-zero, I'd still put my money in government-insured savings accounts. Sure, the Fed might decide to just crater the entire economy tomorrow, but nearly anything is better than the uncertainty and vulnerability of either a manipulated stock market, or completely suppressed gold and silver markets.

 

Oh no, don't turn this into another goldbug thread. You are correct, buying gold and silver is stupid. But it isn't the "big, scary" Fed that hates using rocks for currency, it's modern economics. Take this whack perspective back to the 1800s where it belongs.

 

The stupidest thing you can do with your money is to give it to liberal politicians.

They will use it to destroy you and demand you owe them more.

 

Good. Great advice. Nothing about Trump's decision to allow money managers - what you're complaining about - stops people from taking your advice and going it alone.

That's what freedom is: not supporting limiting choices; not deciding what is best for other people, but allowing as much choice as possible, even if you don't like the choices other people make.

But I do wonder something.

Do you support the Government taking money from my paycheck and 'investing' it in Social Security? Or do you support allowing me to opt out and invest for myself in the same manner you're supporting self-investment in your OP?

 

That's nonsense. Currency can be backed with precious metals, but the FED co-opted that. The 'modern economics' you seem to love has been warped, and skews towards the upper class as a result - and you seem ignorant regarding why.

 

You seem ignorant understanding that backing currency on a limited resource like a rock you dig out of the ground just creates another reason for people to kill each other. We don't really need more encouragement.

 

Congratulations on winning the retirement game. As the saying goes: If you won the game stop playing. That's why with a good retirement balance there is no need to take stock risk.

I disagree, however, with your gold sentiment. Yes, gold is a bad investment, but not because of the FED, but rather because gold is not an investment at all. In contrast to stocks, gold is not investment in a productive asset.

Finally, I would posit that the FED has little control over long term interest rates. They are set by market forces. They have been low for a long time because too much money was chasing safe return.

 

Yes, I do support SS. Why? I believe in diversification. Of course, SS return underperforms the stock market. In return, it still pays out when the stock market takes a 50%+ dive as in 2008. You pay for the safety. I count SS as part of my fixed income holdings.

 

The Fed "printed" trillions of dollars in imaginary money and slashed interest rates to near-zero starting in August 2007. If, instead, it had held the line and let speculators, fraud artists, and reckless gamblers fail, the "Great Recession" would have ended in about a year and we would have already been well on our way back to prosperity long before now.

But, the Fed now has a balance sheet with somewhere near 5 Trillion dollars worth of overpriced, overvalued, largely worthless toxic crap that they need to get rid of, somehow. In the meantime, interest rates languish FAR below the point that they would be if we had had controlled our currency market instead of letting it bloat with worthless "money".

Bottom line: Wall Street gamblers get 'rescued' and protected. Savers get SCREWED. And people who buy gold and silver? Who knows. Mostly they just barely 'tread water'... if they're lucky. The Fed will never allow gold and silver to be good investments again....

 

I begged a woman I know to do this in 2007 through summer 2008 with a company she worked for that was allegedly in merger talks. She had a career's worth of options and she refused to do it because she had been told the stock would go a couple dollars higher than it was....and when the expected merger announcement kept getting pushed backed and pushed back, I warned her again to get the hell out ASAP. In holding out for a few thousand more dollars her options went from hundreds of thousands to tens of thousands in value and she was screwed.

Anyway, I park all my 401K in emerging markets, have business investments, commercial and residential real estate investments and have just about enough cash here and there that I could pay off all my outstanding debt if I were so inclined, so I figure I am as good as I can be at this point in life.

 

There's nothing wrong with managed funds. It helps to understand the management, fee structures, asset allocation and performance. I'd rather see a novice go this route than try to drudge the open market or even an ETF.

 

I guess that explains why you're broke and destroyed. Better luck next time.

 

I'm not (NOT) a "gold bug"... far from it! And I off-loaded a good sized stash of silver coins when silver hit $40/ounce. These weren't really collectible-grade coins, and I knew that we had about hit the peak. I did quite all right.

No, my main point is that gold and silver have "intrinsic" value to everyone on the planet. It's not that I'm in love with so-called 'precious metals'.

Truth: Gold is suppressed. Silver is suppressed. Interest rates on savings accounts are brutally suppressed. Who does this? Central banks! ALL of them, world-wide. Why? Isn't it obvious...?

 

You 'diversify' into crappy investments?

Or you're a hypocrite?

You and I both know that a '50% drop' is only a function of your chosen risk exposure.

Why would you say you 'support SSI', when an investor could do better in AAA bonds?

 

Ok..so you seem ignorant in understanding that your claim has nothing to do with anything. The exact same number of reasons to 'kill each other' exist.

Your point was goofy.

 

And I thought it was spending it on a sex change op.

 

My point may be over your head, but it isn't goofy. If the value of money is determined by rocks people have dug out of the ground, and there's only a limited number of rocks, then people will kill each other for the rocks. You're talking caveman economics here. Whereas in modern economics, fiat money means you can dig rocks out of the ground for money and I can invent a fidget spinner for money. There is no limit to the amount of money that society, as a whole, can earn. It all depends on how productive we choose to be.

 

Ridiculous.

People kill each other every day. It's called robbery.

 

Did I suggest people don't kill each other? Also, killing each other is not called robbery. It's called murder. You seem very confused tonight.

 

Right. People kill each other while robbing one another all the time. Glad you finally get that. What you're talking about isn't an additional way to open up avenues to kill each other; you're simply talking about an alternative way.

Diamonds are pulled out of the ground as well. Your point remains as I originally identified it: stupid.