One Way Wall Street Eats People Alive
In June 2019, I flew to Florida with plans to commit assault.
I had received a call that made me so angry I threw every plan, every obligation out the window so I could go break the legs of a man I had never met.
Here’s what happened…
My 90-year-old grandmother, Nana C, had shattered her ankle — she needed surgery. My mother flew to be a live-in nurse for her.
When she arrived, my mom discovered something…
A brown paper bag full of unopened statements from Nana C’s money manager.
It was thousands of pages altogether.
The most recent statements revealed that a third of Nana C’s nest egg was simply… gone.
My mom called me sobbing. “What can we do? What’s going on?”
I flew to Florida, rented a Camaro, and hauled ass across Alligator Alley to fix it. Or assault a money manager. Or both.
I didn’t know the whole story yet, but two things seemed possible…
1) He was rapidly trading her in and out of stocks to inflate his commissions and fees — effectively stealing from my Nana.
2) He was an incompetent investor — somehow losing money during the biggest, longest bull market in U.S. history.
Either way, we had to drop this guy faster than ice cream spattered with bird crap.
American Investors Under Assault
Nana C’s predicament is extremely common.
I don’t just mean that the world is full of two-bit hucksters who want to exploit the elderly by “managing their money.” Fraudsters steal up to $37 billion from America’s elderly each year.
I mean the financial services industry, at a systematic level, exists to move money from your pocket into the meat grinder that is Wall Street.
Now, I am not saying all stock brokers and bankers are evil.
Some are, sure. But there’s no cabal, no cult. The “evil” of Wall Street is deeper and more nuanced than a room full of conniving sociopaths.
Most folks who work on Wall Street have tedious analysis jobs. They punch numbers into programs that do differential calculus for them. They focus on debt origination and assess risk.
Many of them don’t touch, see, or think about your money at all.
The boring, tedious complexity of the financial industry covers up the complex problems with it.
If people like you are confused by the byzantine nature of the financial industry, you’re not asking basic questions like…
Why are pensions dying off?
Why do 401(k)s, IRAs, HSAs, and other savings and retirement plans urge you to hand over your money to banks or insurance companies?
And why do they make it easy to put that money in the stock market and practically nothing else?
Why do regular savings accounts and CDs and bonds no longer pay decent interest to investors?
Why do banks get to create money out of thin air?
Why is the rate of homelessness for the elderly expected to triple?
Why are there so many middlemen and fees everywhere, always?
Why are politicians terrified to let markets go down?
In the future, I’ll dig into all of the above and more…
Because what happened to my Nana C. is a symptom of a deeper problem that affects your life, my life, and the lives of everyone around the world.
In many ways the modern financial system is like Goya’s painting of the god Saturn devouring his son…
Ultimately, we can’t fully escape our gruesome fate…
Wall Street is going to eat us all alive — whether that’s the smallest ATM fee or colluding with captured governmental regulatory agencies.
But what we decide to do about our money in the meantime can have a huge impact on our financial wellbeing.
"Financial wellbeing," of course, is just a coded way of describing the ability to live where you want to live, eat what you want to eat, and do what you want to do.
I, personally, want Wall Street to have as little control over that as I can manage, for as long as possible. I imagine you might feel the same.
Do You Have Your Investing Priorities Straight?
When I arrived at Nana C’s house, I went through all the paperwork. Her statements revealed THOUSANDS of trades…
Page after page, I’d see one instance of “Net Profit $7.02” for every 5 instances of “Net Loss $202.78.”
This guy sold his services via pamphlets and investment seminars.
He’d sell to seniors from the stage using a casino buffet of “proven strategy” promises… “I trade in and out and make a small profit per trade,” he told Nana C. during his sales pitch.
And don’t kid yourself — anytime a banker or broker invites you to open an account or use a service, you’re getting pitched.
Earlier I said the problem seemed like there could have been two things happening:
1) The money manager was bilking Nana C. with fees by trading her in and out of stocks…
2) Or he was incompetent.
The answer turned out to be both.
Take 2018 for instance.
It was a rough year for the market. The S&P 500 returned -6.2%.
But this advisor?
His trading resulted in a -12.6% loss. And his fees amounted to 9.8% of the account’s balance.
So between this guy’s fees and bad trades, Nana C. lost 22.5% of her retirement savings in one year.
If she’d just bought and held an ETF that tracks the S&P 500 (NYSE: SPY) to begin with, she’d have more than doubled her money by now. Even with the recent Corona Crash.
Nana C. didn’t care about making a fortune… she simply wanted enough cash flow to offset her expenses… without selling any stock.
So after I helped her fire her money manager, I sat down with Nana C. and we came up with a plan together to get her retirement investment priorities straight:
Priority No. 1: Invest in assets you never have to sell.
Priority No. 2: Invest in assets that can grow and that pay you income.
Priority No. 3: Invest in assets that have low or no fees.
Priority No. 4: Invest in non-correlated assets (meaning they don’t move together).
If you don’t have at least $20,000 put aside in savings or investments that don’t do the above?
Don’t play around with trading or speculating. The priorities above should be your priorities, at least for your retirement investments.
We got Nana C. into stocks and ETFs that do the above.
In the years since, even though she has taken thousands of dollars from her account per year to supplement her Social Security, the value of her account hasn’t gone down.
That’s the goal for someone investing for retirement.
Your investments should fund your lifestyle without disappearing.
I have a pretty solid set of recommendations that can accomplish the priorities above, which I’ll tell you about in the future.
But I also want you to know: I won’t stop there.
A conservative, wealth-preservation strategy should be the bedrock of everyone’s retirement portfolio. But there’s a time and a place for smart speculation, growth stocks, trading, and more aggressive strategies, too.
I don’t want to reveal everything now because the data suggest that the market is currently in a bubble…
But I’ll explain more about that in future posts.
In the meantime, channel your inner Will Rogers and say to yourself:
“I am not so much concerned with the return on capital as I am with the return of capital.”
