14 Nov 2014 Trust Stocks, Not the Middle Men
“I don’t trust stocks. They are uncertain, and if you ask five different financial advisors you will get five very different answers about how to deal with their uncertainty.” This declaration, recently made by a young prospective client during a meeting requested by her, at the urging of a friend and client of ours, reveals the deep frustration and fear many have regarding stock investing. Her earnestness to invest wisely her family’s hard-earned savings was evident, but a product-focused financial services industry had all but destroyed her confidence in the wealth-creating power of the stock markets.
Reduced to its essence, investing falls into two categories. By far the most widespread is the practice of buying or selling specific companies, industries, or commodities within markets through timing and/or superior knowledge in order to gain a tactical advantage over the rest of investors comprising the broader market. A distinct minority do it well for a time. That is, until they don’t.
The second method of investing, followed by a small but growing number of people, is the that of capturing most or all of what stock markets deliver. These investors basically hitch their investment vehicles to the power provided by the sum total of human knowledge that is devoted to wealth-generation through innovating, creating, hiring, and producing ever-improving goods and services for humankind.
This form of investing is often referred to as passive investing. The term has gotten a bad reputation, largely at the hands of those whose compensation is directly aligned with the active form of investing. But their argument is misleading at best. In fact, globally diversified passive, or better stated ‘global investing’ is arguably the most efficient and productive way to generate wealth for any investor who is not directly or professionally involved in the markets.
In short, the best form of global investing removes as much friction as is possible. Virtually all the middle men are removed from your investment payroll – the product salesmen, the analysts, the money managers, and all the media noisemakers. The excess fat and drag are stripped away. All that stands between the global investor and the companies he or she owns is the fund that makes that opportunity possible, at a ridiculously low cost compared to their active counterparts. It’s simple: you keep (and compound on for a lifetime) what you don’t have to pay.
There’s an infinite number of wrong ways to invest for life purposes, but they all have these three things in common:
- They are expensive
- They generate unnecessary taxes and
- They eventually under-perform the global markets in time
Getting the middle men out of your investing process is a great first step toward improving the wealth-generating potential of your investment program. But what good is a finely tuned machine if you’ve no idea how you will use it or where it will take you?
We believe your best expenditures for professional services are devoted to developing and maintaining a disciplined investment process and a life plan that optimizes your goals and provides the confidence that you will be able to accomplish those goals with no more stock market risk than is required. If you feel your investment program is dragged down by too many hands in the till, please let us show you a better way.