I’m going to make a very bold statement that I can — and will — back up: Americans have been brainwashed into believing they must accept risk, volatility, and unpredictability to grow wealth and have a comfortable lifestyle in retirement.
Here are the four biggest wealth-destroying lies Wall Street is telling you . . . and what you can do about it:
Wall Street Lie #1: You can come close to getting the long-term return of the overall stock market
Fact: The typical equity mutual fund investor has actually been losing one percent a year for the past 20 years, after adjusting for inflation, according to the well-respected research firm, DALBAR.
The study found that while the returns touted in fund prospectuses “are theoretically achievable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments.”
Another fact that may shock you is that, for the last 40 years, ordinary long-term treasury bonds have outpaced investing in the stock market, according to a study in the Journal of Indexes May/June 2009 issue.
Long-term treasury bonds are what grandma buys so she can sleep at night!
Which means that the only “rewards” investors have received for taking the extra risk of stocks and mutual funds for the past four decades are sleepless nights and broken retirement dreams.
Wall Street Lie #2: Rate of return matters
Wall Street would have you believe that rate of return is the holy grail of investing. But here’s a revealing little quiz . . .
Do you think it’s possible to invest $50,000, get a 25% average annual return on your money every year for four years . . . and end up with only the $50,000 you started with?
If you answered “no,” you’re in for a real surprise!
Let’s assume your money increases by 100% the first year, and then goes down by 50% in the second year. But you do really well in the third year, because your money increases by 100% again. Unfortunately, however, you take a 50% hit in the fourth year.
If you add those four annual percentages together and divide by four, you have a 25% annual return.
Not bad, huh?
But let’s see how much money you actually have in your account . . .
You started with $50,000 and your 100% increase in the first year doubled your money to $100,000. Then you lost 50% in year two, giving you a balance of $50,000.
You did great in year three, when your 100% increase doubled your balance to $100,000. But the 50% decline in the fourth year leaves you with . . . the same $50,000 you started with four years earlier!
So what good did getting a 25% average annual return do you?
Fact: You have nothing to show for this roller-coaster ride. But this is the kind of smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades!
Wall Street Lie #3: Hire an expert for better results
Fact: Eighty percent of investment advisors and mutual funds underperform the overall market — and many do so by a significant margin and with considerably more risk. (Source: The Hulbert Financial Digest, The Motley Fool)
Wall Street Lie #4: “Saving” and “investing” are essentially the same thing.
Wall Street and the financial planning industry have led us to believe that “saving” and “investing” are the same thing. However, they are not. The money you have in savings is money you don’t want (or can’t afford) to lose. Money you invest is subject to loss.
Fact: Most people today “invest to save,” and as a result, have no idea what their nest egg will be worth when they plan to tap into it.
Don’t put money you can’t afford to lose into stocks, real estate or other traditional investments. Before investing, ask yourself if your money didn’t grow for 20 or more years, or even went backwards, could you live with that?
Take this Simple Test to Find Out if Your Financial Plan is On Track
Do you know how much your retirement account will be worth in ten years, 20 years, or on the day you hope to tap into it?
If you can’t answer that question, you don’t have a plan.
But don’t give up hope. There are proven and time-tested ways to grow a substantial nest egg — without the risk or volatility of stocks, mutual funds, real estate, and other investments.
For example, there is an asset class that has increased in value during every stock market decline and every period of economic boom and bust for more than a century.
That asset is dividend-paying whole life insurance.
A dividend-paying whole life policy grows by a guaranteed and pre-set amount every year. In addition, the growth is exponential, meaning it gets better (more efficient) every single year you have the policy, simply because you stick with it. And no luck, skill, or guesswork is required to make that happen.
Furthermore, there are little-known options that can be added to the policy which turbo-charge the growth of your equity (“cash value”) in the policy
Once credited to your policy, both your guaranteed annual increase, plus any dividends you may receive, are locked in. They don’t vanish due to a market correction.
These policies also give you peace of mind for retirement planning, because you’ll know the minimum guaranteed income you can take in retirement, and for how long you can take it.
You can use the money to “bank on yourself” and become your own source of financing, so you can reduce or even eliminate the control banks and financial institutions have over you.
In addition, it’s possible to take retirement income from these policies with little or no tax consequences, under current tax law.
During the financial crisis, even as the experts lamented there was no place to hide, no one lost a penny in a dividend-paying whole life policy, and their policies continue to grow safely and predictably.
There are many myths about this powerful financial tool, and no shortage of “experts” who will tell you to avoid whole life policies.
That’s why I created the $100,000 Challenge. It lets you test your knowledge of the facts about dividend-paying whole life. And a $100,000 cash reward awaits the first person who has a different product or strategy that can match or beat a properly structured dividend-paying whole life policy.
© 2010 Pamela Yellen, author of Bank on Yourself: The Life-Changing Secret to Protecting Your Financial Future
Financial security expert, Pamela Yellen, is author of the best-selling book, Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future. For more information, visit: www.BankOnYourself.com and to take the $100,000 Challenge, visit: www.BankOnYourself.com/challenge.
