The Wealthcare Revolution

So this classic Talking Heads song came to mind as I was reading some recent news. Hit the play button below to jump ahead in the video to just the right spot. After you've enjoyed the song, read on below . . .

A couple of times a year, Standard & Poors publishes a report showing how their passive indexes perform compared to broad categories of actively managed funds. Active managers are those that pick stocks and time the market in an effort to outperform over time.

So here's the latest S&P report with data through the middle of 2010:

Untitled

You're welcome to read the entire report, but I can save you some time . . . on page 3 of the PDF, there is a table showing the "Percentage of U.S. Equity Funds Outperformed by Benchmarks". In other words, the numbers shown are the percentage of actively managed U.S. equity funds that were outperformed by passive, non-actively-managed benchmark indices.

Overwhelmingly, the numbers show, once again, that active investment management is a pursuit in which the odds are stacked against you from the start.

But I Can Beat The Odds

Sure, there are some data points that might provide hope to the struggling active investor or manager. For example, looking at Large Cap Value Funds compared to the S&P 500 Value index, over 3 years, "only" 31.72% of the active funds were outperformed by a passive benchmark. But if you look at the 1 year period for the same category, 80.65% of these same types of funds were beaten by passive alternatives.  And this happened during a relatively volatile time in the market when many active managers claim they can add value by picking stocks and being in and out of the market. Looks like they added value alright -- the just added it in the wrong direction.

No report like this covers all the bases, and you can always accuse S&P or other researches of "data mining", but you won't have to look far to find ample evidence that active investing is a fool's game.  And on top of the fact that your odds of success are low to begin with, active investing costs more, too. So even if you can drink enough to convince yourself that you've got a fighting chance to keep up with, let alone beat, passive investments, you're paying a premium for the attempt.

Costs (including taxes) are certain. Investment performance is not.

Same as it ever was. 

Today, I'm announcing the start of a Revolution in financial advice. A Revolution in financial planning. A Revolution in wealth management.

Read the PDF below for more details. And if you'd like to download the PDF for yourself or to share with a friend, you can click the "share" link below or access a downloadable copy here.

You can become part of the Revolution - sign up here.

The Wealthcare Revolution

Stay tuned to this site for more, including a forthcoming "call to arms".

Would love your thoughts and other feedback in the comments section below.

I was angry.

No. I was actually pissed off.

What kind of a**hole takes advantage of little old ladies?

But I'm getting ahead of myself . . .

About 2 weeks ago, my 86-year-old grandmother drove herself to her weekly hair appointment. It was a Friday morning. This is in Roswell, GA.

After getting her hair done, she walked to her car and got in, started it up, and started to pull away.

Some guy runs up to her car, stands in front of it and yells at her to STOP!  My grandmother stops.

Then this jackass comes around to her side of the car and tells her one of her wheels is about to fall off and her car isn't safe to drive. My grandmother, being the nice, trusting woman she is believed what he said.

But it gets worse. Far worse . . .

This dumbass tells her that he's a mechanic and can fix it for her. I don't remember the price he supposedly quoted her, but it was several hundred dollars. 

Ultimately, my grandmother tells this guy that she only has about $70 on her, and he says something along the lines of "That's OK. I'll go with you to your bank to get more money".

Now, let me admit, I'm partly pissed off at my grandmother for listening to, believing and going along with guy's story. But that's all water under the bridge at this point.

So this guy takes her $70. She says she'd like to call her daughter (my Mom) and let her know what's going on. He gives her some line about how HE has to make a phone call and asks to borrow her cell phone. My grandmother never called anyone.

They get into his car and go to a local bank branch. Yes, you read that right. My 86-year-old grandmother gets into a car with a complete stranger. I told you she was a dumbass.

Apparently he waits outside while she goes into the bank. 

While she's in line for a teller, she mentions to another bank customer what's going on. Thank goodness she did. This guy tells her she's being scammed and calls the cops for her.

The cops show up a few minutes later, but the guy was gone. We later found out that he apparently had another person on lookout for the police. He hasn't been caught to this day.

A police report was filed and my grandmother was taken back to her car and drove herself home. Naturally, she was pretty shaken up from the whole ordeal.

The net result of all this is my grandmother is out $70 and her cell phone because he never gave it back to her. Somewhere during the whole thing, my grandmother told this guy her address, phone number and other personal details. I asked why she would give this information to a complete stranger and she said "because he asked".

Locks have been changed, police patrols have been initiated and other reasonable precautions are being taken to make sure there is no "sequel" to this unfortunate experience.

My Mom later talked to the police officer who filed the report, and he told her that similar incidents have happened in this area with senior victims in the past several weeks. The officer went on to say that if my grandmother had indeed gotten more cash from the bank and gotten back in the car with the guy, she probably wouldn't be alive. I'm not sure I fully believe that, but it's certainly a possibility -- one that thankfully didn't happen.

So why am I sharing this personal family story with you?

For a couple of reasons . . .

First, we've all heard stories about senior citizens being taken advantage of by con artists. Typically, these scammers will approach an older person and tell them that there is something wrong with their car, home, yard, etc. and then offer to fix it for them -- for a price. This is exactly what happened to my grandmother.

So please be careful out there. This isn't just a money issue. Tell your friends and family, especially older ones, to be careful and be wary of anyone that approaches them about anything.

But I also believe that there is a much broader lesson here, too.

Think of all the salespeople out there that prey on your fears. Fear is a strong emotion and these people not only know it, but use it to their advantage and often times to your disadvantage. This could apply to fixing your roof as easily as it could apply to someone selling you an insurance policy or annuity contract.

If you're ever wary or concerned that someone might be preying on your fears or selling you something you don't really need or want, get another opinion or two. Get all the facts before you make a decision. If the "solution provider" won't give you all the facts and fully disclose absolutely everything involved in their "solution", get out of there quickly.

Much of Wall Street is fueled by the fear (and greed) of investors, whether they're little old ladies or large institutions.

Please, don't be a dummy. You've been warned.

<Yes, I toned down the original title of this post after sleeping on it. You can see the original title here>

Many in the financial services world would have you believe that they have proprietary investment models or systems or strategies that will make the difference in your financial life.  That they're better than the other advisors out there because their "secret sauce" is better.

That’s not financial planning; it’s marketing.

If someone really had “the system” to beat all others, why would they share it with you?

I take a much different approach. I don’t have any secrets. And while virtually anyone can access and use the same financial tools and resources I do, most don’t because they’re always looking for the next winning strategy to make up for their last strategy that turned out to be just another clever marketing job.

My investments?

I use 3 low cost, highly diversified index ETF funds that are available to any investor through dozens of different channels.  These investments when mixed into different portfolio allocations are more than adequate for 99.9% of investors out there.

Further, I would argue that my investment portfolios are more appropriate for you than 99.9% of everything else that’s out there on an after-tax and net-of-cost basis.

Please note: I didn’t say my portfolios will beat your portfolios — I don’t know that they will or that they won’t. No one can see the future, but you knew that already, right?

But since my investment recommendations are only made in the context of a financial strategy that’s designed to make the most of your life, they are certainly more appropriate for your personal situation that most of the crap that Wall St. tries to sell to you.

I’m always amused (and sometimes angered) by those that call themselves financial planners that are merely selling you the latest strategy du jour.

You’ve been warned.