Are you falling for the oldest trick in the book? Here’s how it reads. Managers today draw you in with low-cost index funds and past performance—not necessarily in that order. Then, once you’re in the door, they sell you on other stuff, like toxic variable annuities, until you’re blue in the face. It’s hard not to fall for the sales pitch. I get it.
Here’s what happens. It’s Sunday morning. You don’t have a care in the world. Frank Sinatra is playing in the background. Life is good. Then you peel open the quarterly funds report in the Journal and look at the performance like a box score from last night’s game.
You’re reviewing this manager and that manager. Their performance captures your mind’s eye, whisking you away to a hammock under some palm trees where you’re enjoying the Island Life. It’s performance, of course, that gets you dreaming. It’s the past performance that gets you excited.
Unfortunately, it’s past performance that brings out this nagging feeling of frustration—this feeling of missing out. And you begin to imagine how much richer you could be. Then you feel angry, and come Monday morning, you’re going to change your life and call your broker. No time to waste.
The other attraction, of course, is the low cost. “If I save this much, it means a free riverboat cruise come September.” You set sail in January with the new index funds, save a few basis points, and your cruisin’. Then, out of nowhere a virus hits and you shelter in place, afraid to tell your spouse how much your account is down. “Should we sell so we can still afford the cruise?” She asks.
Look, you and I know times, they are a-changin’. No longer do you need to pay an expense ratio on a mutual fund or ETF and for some manager charging you even more to pick the funds for you. Don’t forget his fee—over a percent and a quarter.
The best way forward is to take charge with a zero commissions account at Fidelity and to construct a solid mix of stocks and bonds. Avoid owning some rat’s nest of stuff picked out by some guy whose name you can never pronounce quite right. Don’t be the guy who’s sold a package of goods you never signed up for—you deserve better.
Action Line: There’s a high price to pay for not knowing why you own something. “Why” is perhaps the most important word in the investing language. There is a better way to invest. Let me help you find yours—allow me to show you the way.
E.J. Smith - Your Survival Guy
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