According to an April 2020 Gallup poll, only 55% of American households own stocks, either directly or through a fund.
That is far less than the 65% who owned stocks in April 2007, before the Great Recession.
Given that a diversified portfolio of stocks has beaten the return on bonds, cash, real estate and precious metals not just for years or decades but for more than two centuries, why is this?
According to a new poll from Bankrate and YouGov, half of Americans believe the stock market “is rigged against individual investors.”
That’s part of the reason that so few Americans own equities.
But here’s the most surprising part…
Fifty-six percent of those who are investors believe the market is rigged against them.
The United States has the widest, deepest and most transparent financial markets in the world.
The real problem is that millions of men and women lack the knowledge and tools to use them to create a legacy of wealth.
According to research firm Dalbar, the average equity investor vastly underperforms the S&P 500, not only from one year to the next but decade after decade.
Similarly, the average fixed income investor does far worse than the primary bond index, the Barclays Capital U.S. Aggregate Bond Index.
Why is this? I’ve narrowed it down to six factors.
- Lack of knowledge. It’s a shame that financial literacy is not taught in most high schools today. As a result, students regularly graduate without understanding basic investment terms – like asset allocation and diversification – and no understanding of how to turn low-yielding savings into a high-returning portfolio.
- Poor delegation. Many folks realize they are ill-equipped to invest successfully – and so they turn everything over to that nice young man at Merrill Lynch. Big mistake. If you don’t have a fiduciary relationship with your advisor, you are almost certainly dealing with a salesperson whose primary job is to convert a substantial percentage of your assets into the firm’s assets.
- Performance chasing. Many investors are prone to putting their money into whatever is hot. This can work out for a while, as GameStop (NYSE: GME) traders learned earlier this year. But without a disciplined sell strategy, buying whatever is rocketing higher can have devastating consequences.
- Market timing. Everyone would like to be in the stock market for the rallies and out during the downturns. But doing it consistently is not possible. (You can take my word for it or learn the hard way.) Anyone can make a good call now and then. But market timing leaves you vulnerable to being out of the market for the upturns and in during the downturns. And that decimates performance.
- Panic-selling. When the market does suffer a dramatic correction or bear market – as it will periodically and without warning – it’s tempting to move onto the sidelines until things look better. The problem is that stocks move up well in advance of the outlook improving – as last year’s market action made clear – and that leaves you standing at the station while the train races off.
- High fees. The goal is for you to get rich, not your broker, advisor or fund manager. Investment pros will counter that you get what you pay for. But in the world of portfolio management, the opposite is true. The vast majority of professional money managers cannot outperform an unmanaged benchmark. And what you don’t pay in expenses is yours to keep. (In particular, and with interest rates so low, a bond fund manager can take most of your annual return.)
The real problem is not that financial markets are rigged. It’s that people often lack the knowledge and experience necessary to reach their most important financial goals, including a secure retirement.
I aim to solve that problem with my new book, The Gone Fishin’ Portfolio: Get Wise, Get Wealthy… and Get On With Your Life.
When I created the Gone Fishin’ strategy in 2003, I asked investors this question:
If I could show you a way to manage your money yourself, using a strategy as powerful and effective as any used by the nation’s top financial institutions… one that will allow you to outperform the vast majority of investment professionals… that imposes zero sales charges, brokerage fees or commissions… that takes less than 20 minutes a year to implement… and is based on an investment strategy so sophisticated it won the Nobel Prize in economics, would you be interested?
The answer was a resounding “Yes!”
And that initial promise has been fulfilled, as the portfolio’s 18-year track record demonstrates.
An investment of $100,000 in the Gone Fishin’ Portfolio in January 2003 – with dividends reinvested – was worth $468,446 at the end of 2020.
Investors who have put their money to work this way have enjoyed years of market-beating returns, while taking far less risk than being fully invested in stocks.
The latest edition of the book – with a new foreword by longtime subscriber and bestselling author Bill O’Reilly – was just released this week.
It is already Amazon’s No. 1 bestseller in Investment Portfolio Management.
In fact, the book was backordered within hours of publication.
You can find it here. And if you have family members, friends or young graduates who would benefit from it, consider copies for them as well.
The Gone Fishin’ Portfolio is the distillation of the best things I’ve learned in more than 35 years as a research analyst, portfolio manager and financial writer.
I encourage you to buy it, read it, enjoy it… and profit from it.
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