“Sounds like you guys are a couple of bookies.” – Eddie Murphy, from the movie Trading Places, after being educated about Wall Street commodities trading.
There are tons of comparisons from all walks of life discussing how Wall Street is ‘just like a casino‘ because you can lose your money just as fast as you win it. If I was a casino owner, I would be FUMING MAD at this comparison because I would never want to be compared in the same sentence as Wall Street because Wall Street and mutual fund advisers are closer to ‘bookies‘ than anything else, as depicted in the video clip. In the United States of America, it is illegal to operate a betting scheme, except in Nevada, Oregon, Delaware, and Montana – but Wall Street is a completely different game entirely. It is a game that you simply cannot afford to lose – especially in retirement – and the deck is stacked against you. You are playing poker with the top poker players in the WORLD – and you are not going to win at that table.
“Nearly all mutual fund companies have a stacked deck. They are the ultimate casino. They’ve captured you, you’re going nowhere, and they are guaranteed revenue whether you win or not.” (directly from national bestselling book from Tony Robbins titled ‘Money: Master The Game‘). CBS’s flagship program 60 Minutes even went as far as documenting how the stock market is rigged in their documentary titled ‘Is The U.S. Stock Market Rigged?‘
Even casinos do not operate in this manner. Here is why the correlation between Wall Street and casinos is not fair to the casinos:
- If you WIN at a casino, do you get ALL of your winnings – or does the casino take a ‘bite’ out of your winnings? You get it all. Do you get all of your ‘winnings’ with Wall Street when your investments go up? Nope. You may still have fees coming out – no matter what.
- If you LOSE at a casino, does the casino take more from you than what you lost? Nope. Does the casino charge you a ‘fee’ for losing your money – above and beyond what you lost? Nope. But Wall Street can – and often does.
- When you walk into any casino, you can ask for an ‘Odds Book’ that lists the odds of winning for each game in the casino. Does Wall Street have anything like this? Nope. You are on your own.
- If a ‘high roller’, professional gambler comes to the same casino you are at and starts making HUGE bets, does it affect your chip count when you are on the other side of the casino floor? Nope. But, if a billion dollar stock-picker (I am quite sure you know the names of a few of these folks) places HUGE stock trades, can it affect your stock account? Absolutely. Again, refer back to the 60 Minutes documentary above.
- If gambling causes you considerable emotional, personal and financial damage, you can join a Gambling Anonymous group or you can call a gambling crisis hotline, which carries an actual clinical diagnosis called ‘Compulsive Gambling‘. Does Wall Street have a system like this to help you during your time of need? Not a chance.
In Tony Robbins’ new book titled ‘Money: Master The Game‘, he interviewed hundreds of financial experts and collected an uncountable amount of third-party data regarding this phenomenon – and the conclusions are clearly documented and cannot be disputed:
- The average cost of owning a mutual fund is 3.17% per year on a non-taxable account and 4.17% on a taxable account (directly from ‘The Real Cost of Owning a Mutual Fund’, Forbes, April 4 2011).
- With the help of fine print, the $13 TRILLION mutual fund industry is hands-down the most masterful in the craft of hiding fees. “Going back to your broker to help you save on fees is like going to your pharmacist to help you get of meds.“- Tony Robbins. Very true.
- 96% of actively managed mutual funds (aka: the advice from your mutual fund broker) did NOT beat the market, they are charging you an arm and a leg, and extract up to two-thirds of your potential nest egg in fees.
But here is the kicker: (direct quote from the book) “They (the mutual fund brokers) are going to have the nerve to look you in the eye and tell you that they truly have your best interests at heart while simultaneously lobbying Congress to make sure that is never the case.”
How This Affects Your Financial Planning
Forbes Magazine recently published an article titled It’s Official! Gurus Can’t Accurately Predict Markets, stating an average investor has less that a coin-flip chance of winning. CXO Advisory Group has been collecting data from market forecasters since 1998. The firm has tracked and graded thousands of market forecasts made by dozens of popular gurus over the years. The overall results are not good. CXO has concluded that the market experts accurately predicted market direction only 48 percent of the time. Here is a direct quote from the Forbes article:
- Forecasting isn’t about predicting the market; it’s about marketing the prediction. As one newsletter guru told me years ago, “Given a choice between great marketing and great forecasting, I’d pick great marketing every time.”
Senator Peter Fitzgerald, co-sponsor of the Mutual Fund Reform Act of 2004 (which was killed by the Senate Banking Committee, ironically) states IN WRITING that “the mutual fund industry is now the world’s largest skimming operation, a $7 TRILLION trough from which fund managers, brokers, and other insiders are steadily siphoning off an excessive slice of the nation’s household, college and retirement savings.”
Lastly, I want to leave you with a story that Tony documented in his book. It is called The Offer:
- “I want you to imagine that someone comes up to you with the following investment opportunity: He wants you to put up 100% of the capital and take 100% of the risk, and if it makes money, he wants 60% or more of the upside to come to him in fees. Oh, and by the way, if it loses money, you lose, and he still gets paid! Are you in? It is a no-brainer. The only problem is that 90% of American investors that are invested in a typical mutual fund, believe it or not, have already agreed to these terms.”
“How in the world do you convince 92 million Americans to participate in this strategy?”, Tony asks – and he asked this to Jack Bogle, the founder of The Vanguard Fund, whose 64 years on Wall Street have made him uniquely qualified to shed light on this financial phenomenon. Jack’s answer? “Marketing. Tony, it is that simple. Most people do not do the math, and the fees are hidden.”
Jack Bogle has been a continual proponent of changing the ways of Wall Street. He believes that investors should see how much they actually earned (or lost) based on their own personal situation. Sounds like common sense, right? Bogle says: “We’ve compared returns earned by mutual funds investors – dollar-weighted returns – with the returns earned by the mutual fund themselves, or time-weighted returns, and the investors seem to lag the fund by three percent per year.” So, if the fund advertises a 6% return, the investors achieved closer to 3%.
If I was a casino owner, I would be FUMING MAD at the comparison to Wall Street.
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Matt Nelson, president and host of Income For Life Radio
Income For Life LLC
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