Rich Dad Education Scam #5:
You’re Smart to Leave Investing Decisions to Financial Advisors and Fund Managers
Lusha was asked to attempt to outperform Russian investment bankers by selecting stocks for her own portfolio. She was given 30 companies to choose from and selected eight of them to invest in. After one year she produced outstanding results and outperformed 94 percent of the country’s investment funds. This is an astonishing result from an amateur investor with no formal training. It becomes even more astonishing once you realize that Lusha is a chimpanzee.
That’s right, a chimpanzee.
One might scoff and tout that American financial advisors are far more knowledgeable than their cold-war counterparts. Unfortunately, a recent study by Cass Business School researchers found that monkey’s selecting stocks at random would have easily outperformed the US stock market over the last 40 years. Their study based on data from 1968 to 2011 found that the random monkey results weighted by chance delivered vastly superior returns to the market cap approach. They ran their virtual simulation 10 million times for each of the 43 years which was designed to simulate the stock-picking abilities of a monkey.
Mutual fund managers once again may attempt to find fault with the study, attempting to feverishly justify their existence, yet it is not hard to find even more damning evidence.
- In 2012, Over 60% of fund managers did NOT outperform the S&P 500 in 2012. That means you could have done better simply putting your money into the S&P – and also saving yourself the hefty fee the fund manager charges you even when they lose you money.
- According to S&P Indices in 2011, four out of five managers failed to beat the market. Actively managed US stock funds lost an average of 2.6 percent versus the broader market gains of nearly 1.8 percent.
- Over time they do not do well either. A study that looked at more than 24,000 mutual funds available to US investors for a 10-year period ending on December 31, 2012 found that only 24% of active mutual fund managers outperform the market.
If a monkey was being paid to run an actual mutual fund, people would cry from the rooftops that it was a scam. If thousands of mutual funds were using computers to randomly pick stocks, there would be a congressional hearing. Politicians would be lining up in front of cameras to lament one of the greatest scams ever to befall on the American people. When financial advisors and mutual fund managers collect enormous fees yet constantly fail to beat the market, there are no cries of outrage. There is seldom even a shrug of the shoulders despite the fact that trillions of dollars are invested through these individuals.
Mutual Funds – What They Don’t Want You to Know
Perhaps we are trained in society to seek out specialists. After all, when one is sick there is no question that you should seek out a doctor. If you need legal advice, you call a lawyer and if your basement is flooding, you call a plumber. It shouldn’t be surprising then that when a person wants to invest their money, they seek out a specialist that can help them.
When a person seeks out a specialist, they assume that the person is working to achieve their goals. For example, when a person goes to a lawyer, they assume that the lawyer will do everything they can do to protect their interest. While one might be wary of being over-billed, they seldom think that the lawyer will do anything less than actively work toward winning their case. Anything less would be seen as a severe act of negligence, a scam of the highest order.
However, with a mutual fund advisor, you cannot ensure that they truly are working for you and striving to meet your goals. Many advisors are not really working for you. They are working for the firms that create the financial instruments they sell. Therefore, they have a vested interest in moving you into investments on which they make the biggest commission – not the investments that may be best for you and your financial goals.
In addition, mutual fund managers rarely go over many of the hidden details of your investment. Mutual fund managers rarely discuss their own personal incentives, and how they are compensated. Financial planners and mutual fund managers do not point out that you are putting up 100% of the money, taking 100% of the risk, yet after fees and commissions only get 20% of the profit. If someone on the street approached you with such an offer, you would probably think they were pulling a scam.
Post Financial Crisis
Since the financial crisis occurred in 2008, it has become apparent to many that the traditional means of investment is not for them. These individuals have sought to be less reliant on traditional financial services and more reliant on their own ability to make proper financial decisions. Robert Kiysosaki has pointed out that knowledge is the foundation for individuals to achieve this financial self-reliance.
“Money does not make us rich. Knowledge does. This is the power of real-life financial education and why knowledge is an unfair advantage.”
Rich Dad Education has made its mission a bold one. Rich Dad Education strives to increase the financial intelligence of mankind and provide students the knowledge that will enable them to control their financial destiny. For those that work for Rich Dad Education, financial freedom is not an abstract concept, but a goal that each individual can achieve.
One does not need to be reliant on the traditional financial vehicles that society has deemed acceptable to use. Empower yourself by acquiring knowledge of how to guide your destiny. After all, if a monkey can consistently beat financial planners, then you have got to like your chances!