Gain A Competitive Advantage
This past decade of lost returns has exposed a dangerous game being played by investors. The sad reality is that most investors are completely unaware of this game and its long-term painful consequences.
Consider two of the most followed market indices: the Dow Jones Industrial Averag (DJIA) and the S&P 500 (SPY). Both of these have produced the following annual rates of returns (approximate) over the past 10 years: 0%, zilch, nada…nothing! These rates of return would have been known as playing a ‘zero-sum’ game over the past decade but unfortunately, and truth be known, investors investing in these indices are fairing much worse because they’re playing the financial service industry’s game (which is known as a ‘Negative-Sum’ game).
What do we mean by a ‘negative-sum’ game? Let’s look at an example:
- If an investor had $100,000 in August of 2001 and an advisor invested this money in DJIA and/or SPY-like mutual funds, today that money would be worth approximately $75,000, a loss of $25,000.
- If the current pattern of subdued or no return continues for another decade through 2021, that $100,000 investment will be worth approximately $58,000, a 42% loss in wealth.
How can this be if these indices produced a 0% annual rate of return? Even after a decade, shouldn’t the $100,000 still be $100,000? That would indeed be the case if one were playing a ‘zero-sum’ game. But as we stated earlier, investors are playing the industry’s ‘negative-sum’ game.
The reason behind this ‘negative-sum’ game is totally due to excessive investment fees that all investors pay: Fees paid to an advisor, fees paid to manage and administer mutual funds, fees paid to brokers for trading costs, fees paid to market/sell investment products and the list goes on and on.
This is why we stress the importance of minimizing any and all FEES!!!
These fees are not limited to stocks or bonds, but are present anytime an investor chooses to use a financial advisor to manage their money…period!
So, here’s our Tip-of-the-Week: Gain a competitive advantage by learning how to play a new game, a winner’s game! Ask yourself this question: Can your investments and financial future afford to continue playing the industry’s ‘negative-sum’ game that confiscates your wealth?