The Prosperity Blog

The Questions Wall Street Hopes You’re Not Asking

Part 6 of “Target-Date Investing: Ten Mistakes Wall Street Hopes You Make.” (Find the whole series here.)

“Successful people ask better questions, and as a result, they get better answers.”
-Tony Robbins

The Questions Wall Street Hopes You're Not AskingProsperity Economics urges people to take back control of their thinking as well as their money. This leads us to the last big investor mistake in this series:

Mistake #10: Ask the wrong questions. (Or… ask the questions that Wall Street wants you to ask.)

Wall Street has taken over the retirement investment market not simply by making their funds (whether target-date, balanced, or managed) the default option, but by reframing the very questions investors are asking.

Our investing decisions – our actions, strategies, the products we buy – are determined by our thinking, and our thinking is heavily influenced by the media that is largely beholden to financial corporations. Whether you invest in target-date funds or other mutual funds within a retirement account or 401(k), these are the questions you should be asking:

“Is rate of return the most important thing? What other priorities should I have?”

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Is Your Investing Paradigm Upside Down? The False Assumptions and That Lead Investors Astray

Part 5 of our “Target-Date Investing: Ten Investment Mistakes Wall Street Hopes You Make” series. (You can find all of our Target-Date Funds articles here.)

“Usually, one would expect a retail product in a fast-growing, $500 billion market to have a great reputation among the consumers buying the product and the professionals who provide, recommend and sell it. The odd thing here is that its growth may be largely attributable to ignorance.”
-Robert, Boslego, Boslego Risk Services, in guest column for Riabiz.com on target-date funds.

Is Your Investing Paradigm Upside Down? The False Assumptions and That Lead Investors AstrayMistake #9: Base your investment strategy on false assumptions.

Target-based funds (and most mutual funds) are built on false, inaccurate and costly assumptions. For instance, let’s look at the faulty suppositions that relate to the first 8 mistakes we’ve covered so far in this series on “Target Date Investing: Ten Investment Mistakes Wall Street Hopes You Make.” Are you basing your investment strategy on these dangerous assumptions?

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Bullet-Proof Wealth: Four Keys to Economic Self-Reliance

“The fiscal crisis will continue until morale improves.”
– The Washington Post

The 2013 Government Shut DownThe government shut-down that started yesterday will hit many Americans right in the pocket-book. Some have had their jobs suspended, effective immediately. Others could have paychecks or benefit checks delayed. Millions of non-government workers will be hit as well, such as those whose livelihoods depend on travelers flocking to Yellowstone, Yosemite, the Statue of Liberty, the Smithsonian Institution, and hundreds of other National Parks and Museums.

As with past government shut downs, our politicians will eventually find ways to compromise and re-start the federal engines. But in the meantime, we would be wise to contemplate what lessons might be gleaned from this event. Specifically, how can we increase our own economic self-reliance, even as the government goes on strike for lack of funds?

Regardless of our job, our business, even our investment strategy, “stuff” will happen. It’s unavoidable. However, you CAN avoid derailing your prosperity when the unexpected happens! The real question is, how can you prepare for the unknown and continue to prosper in spite of it?

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The Truth About “Diversification” and “Longevity Risk” with Target-Date Funds

PART 4 of our “Target-Date Investing: Ten Investment Mistakes Wall Street Hopes you Make” series.

“In my opinion, they (target-date funds) should come with a label that says, ‘Warning: This target-date fund is loaded with equities that may be hazardous to your retirement plans.’ “
-Brian Graff, CEO of the American Society of Pension Professionals & Actuaries, in Bankrate.com article

The Truth About "Diversification" and "Longevity Risk" with Target-Date FundsAre you really diversifying and reducing risk with a TDF? As we explore mistakes #7 and #8 today, the truth might sting!

In part one of this series  we revealed the first three mistakes:

  • Giving up control of your money,
  • Substituting target-date funds for financial advice, and
  • Receiving “advice” from people with little-to-no training in retirement planning.

In part two,  we named the next mistakes Wall Street hopes you make:

  • Trusting your investments to advisors and managers with conflicts of interest, and
  • Paying substantial fees for the poor advice, sales pitches, conflicts of interest and mismanagement.

And in part 3,  we explored in depth the sixth mistake:

  • Leaving your retirement funds in a target-date fund after retirement. 

What other mistakes are you making if your money is in a target-date fund? This week, we look at two places that TDF’s fall short: diversification and risk reduction.

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Life Insurance Commission Shock: Whole Life Commissions vs. Mutual Fund Expenses

“Last week I bought a life insurance retirement policy. All I’ve got to do is keep up the payments for 15 years, then my agent can retire.”

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How much commission does a life insurance agents make? You might be very surprised…

In the last two weeks, we have exposed the shocking affect that those “little” mutual fund commissions can have over time. First, we showed how the average American family loses six figures (an average of nearly $155k) of their retirement to fees and commissions. Last week, we demonstrated how qualified plan participants who leave their dollars in target-date retirement funds (or other mutual funds) can lose up to 79% of their hard-earned dollars to the tyranny of compounding fees.

But what about the commissions you’ll pay on whole life insurance? Aren’t they even worse!?

Financial authors and educators name “huge commissions” as proof positive that whole life insurance is a terrible financial strategy. Insurance agents are rumored to take home 80%, 90%, or more of the first year’s premium, which is difficult for many people to stomach. But is this the whole truth?

Recently, Tom Dyson at the Palm Beach Letter and Palm Beach Wealth Builders Club investigated this and published a ground-breaking report called “The Shocking Truth about Life Insurance Commissions,” exclusively for their paid subscribers. (Palm Beach Letter publishes exclusive newsletters about lesser known investments and money-making opportunities used by the wealthy. They do not sell insurance or receive insurance commissions.)

The special report showed the real facts and figures – how life insurance commissions work, and how these insurance cash value accounts (and the commissions) compare in the long run with mutual funds. We were so blown away by what they discovered that we begged their permission to share liberal portions of this “for paid subscribers only” report with our own readers. (Fortunately they said “yes”!)

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Should You LEAVE your Money in a Target-Date Fund? “To” vs.”Through” Retirement Funds

Part 3: Target-Date Investing: Ten Investment Mistakes Wall Street Hopes You Make

” ‘Through’  funds have been concocted as (1) an excuse for the 2008 failure and (2) a grab at keeping assets longer.”
– Ron Surz, Target Date Solutions

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If your money is in a Target-date fund in a 401(k), you’re already making some serious financial mistakes.

In our first installment of this series, we talked about:

  • investment mistake #1: Giving up control of your money,
  • mistake #2: Substituting target-date funds for financial advice, and
  • mistake #3: Receiving “advice” from people with little-to-no training in retirement planning.

In part two, we explored:

  • mistake #4: Trusting your investments to advisors and managers with conflicts of interest, and
  • mistake #5: Paying substantial fees for the poor advice, sales pitches, conflicts of interest and mismanagement.

But I have a confession. It turns out, we soft-pedaled the impact of fees a bit. Yes, we demonstrated that fees will siphon off a whopping six figures from the average household’s retirement fund. But look how estimates of 30% or $155k lost to fees by age 65 continues to grow if you make the next mistake:

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Target-Date Investing: Ten Investment Mistakes Wall Street Hopes You Make PART 2

“Target-date funds are an expensive tool. It’s like taking a taxi to Vegas.” 
– John Graves, financial author, in the Huffington Post.

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Part 2: Are You Paying for Retirement Fund Conflicts of Interest?

In part one of “Target-Date Investing: Ten Investment Mistakes Wall Street Hopes You Make,” we uncovered investing mistakes such as giving up control of your money, substituting target-date funds for financial advice, and being advised by unqualified (if well-meaning) people who are not trained or certified to give financial advice.

What other investing mistakes does Wall Street hope you’re making?

Mistake #4:  Trust your investments to advisors and managers with conflicts of interest.

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