"I'm not so concerned about return on investment, as I am return of investment."
- Will Rogers
Investing 101: Learn the truth about investing in paper assets.
There are too many types of paper assets to list and try to explain in detail. Our goal is to simply expose you to broad truths about paper assets that you very likely have never heard before.
The stock market and other paper assets have the potential to build wealth and although investing in the stock market has worked for some people, more often than not, investing in paper assets actually works against you - because most people don't know the rules - even those who give advice often lose money because they don't understand the real forces that drive markets.
Americans have been conditioned to believe that the stock market was created so that regular people could share the wealth created by successful companies. Although this is a perspective has some merit, it does not explain the real purpose of the stock market.
THE STOCK MARKET WASN'T CREATED TO MAKE YOU WEALTHY. IT WAS CREATED TO MAKE OTHER PEOPLE WEALTHY BY TAKING YOUR MONEY AND GIVING YOU THE RISKS.
Are there investors in the stock market who have made money? Absolutely. But, it wasn't created for that purpose. When a company goes public, they make something out of nothing in order for them to be able to use your money to make them wealthy and transfer their risk to you. I realize that this may be somewhat difficult for some of you to grasp, but it is true.
Let me explain in detail so you will understand.
When a company decides to go public, they create shares of stock that did not exist previously. They decide how many shares of stock to create depending on what they feel the market will bear. They decide how many shares of stock to keep for themselves and how many to sell.
Suppose that they create 200 million shares of stock and decide to keep 100 million shares and sell 100 million shares. When you buy 100 shares of stock they can use that money to create wealth for themselves and you accept the risk for those 100 shares of stock.
If your 100 shares go up in value - so do their 100 million shares. If your stock goes down in value, so do theirs. However, you paid money for each of your shares so you can lose money - that's risk. They created their shares of stock out of nothing and by selling them to you, they take your money and give you the risk.
Now you understand why it takes you 30 years to never seem to become a millionaire and they become billionaires virtually overnight…and why, when you are losing money in a downturn, the CEO of the company is still getting multimillion dollar bonuses.
In a seminar I attended, one of the students, hoping to get a hot tip, asked the multimillionaire presenter what stocks he invested in. His reply may surprise you. It surprised the student.
He replied, "None. I don't invest in the stock market."
The student was dumbfounded. In her view, in order to be wealthy you had to invest in the stock market. When she asked him why he didn't invest in the stock market, he laughed and said, "Because the returns are low and the risk is high."
She then asked him what he did invest in. He explained that he was a venture capitalist and he invested in new ventures before they went public.
The reason! He knew the truth.
He understood that when a company goes public, they create shares, often millions of shares that they will sell to the public, but they also create shares that they keep for themselves. Venture capitalists get a large portion of those shares because they bought part of the company before it went public.
Being a venture capitalist can be a great way to create wealth.
The problem is, you need to already have millions before you can become a venture capitalist and get in on the inside before a company goes public. So the only option left to us if we want to invest in paper assets, is to invest from the outside, which actually works against our ability to create wealth.
Why? Because...
YOU DO LOSE MONEY WHEN THE MARKET FALLS, REAL MONEY.
So called investment advisors keep telling you that when the market drops you really haven’t lost any money because you will get it all back when the market comes back.
That’s like telling someone that lost half of the trees in their apple orchard that they didn’t really lose anything because when the new seedlings come back they will have the same number of trees.
Are they serious?
What about all the apples that the old trees would have produced over the ten years that it takes for the new trees to mature?
They tout catchy slogans like “Dollar Cost Averaging” to make you believe that it is actually good news when the market drops because you are now buying stocks on sale!
Do they ever stop to listen to what they are saying?
Sure, we all love to buy things on sale, but any fool can see that being able to buy a few stocks on sale doesn’t come close to making up for half of your retirement funds getting vaporized. Yet, they talk like they honestly swallow this stuff!
They are quick to lay out the benefits of investing today instead of later and use solid financial principles like the “Time Value of Money” to sell you on the validity of investing early, which is true.
What they don’t tell you is that sustaining losses in the market throws the “Time Value of Money” in reverse, so it actually works against you instead of for you. They don't mention that losing in the market can not only put you back at square one, it can actually put you at negative one or negative two, etc.!
They are quick to paint a rosy investment picture by showing you the "Average" return of the market with slick graphs that show a steady upword curve that leads you to the financial promised land.
There is only one problem...
"AVERAGE" RETURN IS NOT THE SAME AS "ACTUAL" RETURN.
Not understanding this concept can wipe you out financially.
The "average" American family has 1.8 children. Yet no "actual" family has 1.8 children. I've never seen a .8 child, but I have heard about them - in the National Enquirer.
Humor aside, the same holds true for investing. Since 1902, the Dow Jones Industrial Average has an "average" return of 7.74%, but an "Actual" return of on 5.87%.
How can this be?
Because "average" and "actual" are really two very different animals.
To help you understand, lets pretend for a moment that I am your financial advisor. You give me $100 to invest and the first year you lose 50% and end up with $50 at the end of year one. In year two, your investment will have to grow by 100% for you to just break even. So lets say it does that.
At the end of year two you get a 100% return and you are back to $100.
You come to meet with me to review your investments. We sit down and I explain that the first year your return was -50% and the second year it was 100%. To get the "average" return we add -50% to 100% and get 50%, then we divide 50% by 2 years to get a 25% "average" return.
I slap you on the back and congratulate you for doing so well in the market, hoping that you don't realize that if you started with $100 and ended with $100, your "actual" return is really 0%!
Now you understand that when investment advisors base their projections on "average" returns of 5%, 10%, 15%, 20% or whatever, what they are saying is meaningless.
It really is absolutely meaningless! Why?
Because you can't make a prediction based on "average" return. When risk of loss is part of the equation, there is no way that you can even determine a relevant projection!
To illustrate this point, I am going to tell you a sad story that happened during the dot com market crash of 2000. One of my coworkers parents had invested in the bull market preceding the crash.
Their funds had "averaged" 20% for several years and had grown to approximately $1 millon. They excitedly started planning for their retirement, thinking that they could live on $150,000 a year and still have $50,000 a year left over with their 20% "average" return.
Then the market tumbled. In three weeks they lost $500,000! How do you project what your income will be when you lost 50% in 3 weeks.
You can't. And that is precisely my point.
Projections made by investment advisors are meaningless when there is a risk of loss. There is no way that you can make projections when you are invested in the stock market...and neither can your investment advisor. It is impossible!
Which is why the steady upward curve to the promised land is in actuality a roller coaster ride that few people have the stomach to endure. But that roller coaster ride never seems to make your financial advisor the least bit queezy. I wonder why?
Maybe it's because...
YOUR INVESTMENT ADVISOR MAKES MONEY WHETHER YOU MAKE MONEY OR LOSE YOUR SHIRT!
Most investment advisors charge management fees to manage your funds, typically 1.5% to 5%+ depending on the firm. So if they show you a gain at the end of the year of 5%, you really gained 6.5% to 10%+, and they graciously took their fee off the top before calculating your gain.
But what happens when you lose in the market?
You guessed it. These guys don't work for free. Your 5% loss becomes a loss of 6.5% to 10%+.
And that's not the worst part! Many investment advisors also make commissions whenever you buy or sell stocks. A business professor told the story of his first experience investing in the market. He started with $100,000 and trusted his learned advisor. When his advisor said to buy, he bought. When he advised selling, he sold. Within 2 years all of his money was gone - paid out in commissions on all that buying and selling.
Which brings up an even bigger problem.
CORPORATE CEO'S AND INVESTMENT ADVISORS ARE NOT WORKING FOR YOU.
They are looking out for themselves first and in most cases they make their money whether or NOT you make money.
In the last few months, most investors in paper assets have learned the hard truth that most and sometimes ALL of the money you invest can be lost - all of your sacrifice to scrimp and save and invest can vanish.
They have also learned that Corporate CEO's aren't always looking out for the stockholders...even the investment advisors are willing to lie to convince you to buy junk stocks in order to make their commissions.
If you know what you are doing, investing in paper assets does have upside potential. But, investing in paper assets is very complicated, involving a number of factors that even the lifetime professionals don't always get right - and if you don't get everything right you could very easily be left with nothing at the very time that you need it the most.
Which brings us to the most important point...
TO CREATE WEALTH, YOU HAVE TO TAKE THE RESPONSIBILITY, NOBODY ELSE WILL DO IT FOR YOU.
You can listen to the Wall Street brokers who make their money whether you do or not - or you can learn truth and use that truth to analyze investments for yourself. By taking responsibility for money, you empower yourself to do what no one else will - make decisions that are in your best interest!
Have you ever considered ways to protect your assets from the risk of market loss?
Experts project that most Americans could pay up to five times more taxes because they are investing in 401k’s and IRA’s that defer taxes. Will taxes go up in the next 30 years?
Is it possible to grow your assets where funds can be received tax free?
Can you utilize your funds without bumping into a higher tax bracket?
Can you keep your Social Security Benefits from being subject to taxation?
Can you access your money before age 59 1/2, without having to pay taxes and penalties?
Can you contribute more than $5,000 a year?
Are your assets at risk of litigation, judgments or garnishment?
If you need inpatient care, are your assets protected from Medicaid and Medicare?
Is it possible to make your assets judgment proof?
Our mission is to bring financial freedom to American families through effective education, superior tools and expert service.
Unless you have a real financial education, you really can't make educated decisions about what is best for your financial future.
Are you interested in receiving a real financial education?
Would you like to receive a Free Personal Investment Review from our team of financial professionals?
There are too many types of paper assets to list and try to explain in detail. Our goal is to simply expose you to broad truths about paper assets that you very likely have never heard before.
The stock market and other paper assets have the potential to build wealth and although investing in the stock market has worked for some people, more often than not, investing in paper assets actually works against you - because most people don't know the rules - even those who give advice often lose money because they don't understand the real forces that drive markets.
Americans have been conditioned to believe that the stock market was created so that regular people could share the wealth created by successful companies. Although this is a perspective has some merit, it does not explain the real purpose of the stock market.
THE STOCK MARKET WASN'T CREATED TO MAKE YOU WEALTHY. IT WAS CREATED TO MAKE OTHER PEOPLE WEALTHY BY TAKING YOUR MONEY AND GIVING YOU THE RISKS.
Are there investors in the stock market who have made money? Absolutely. But, it wasn't created for that purpose. When a company goes public, they make something out of nothing in order for them to be able to use your money to make them wealthy and transfer their risk to you. I realize that this may be somewhat difficult for some of you to grasp, but it is true.
Let me explain in detail so you will understand.
When a company decides to go public, they create shares of stock that did not exist previously. They decide how many shares of stock to create depending on what they feel the market will bear. They decide how many shares of stock to keep for themselves and how many to sell.
Suppose that they create 200 million shares of stock and decide to keep 100 million shares and sell 100 million shares. When you buy 100 shares of stock they can use that money to create wealth for themselves and you accept the risk for those 100 shares of stock.
If your 100 shares go up in value - so do their 100 million shares. If your stock goes down in value, so do theirs. However, you paid money for each of your shares so you can lose money - that's risk. They created their shares of stock out of nothing and by selling them to you, they take your money and give you the risk.
Now you understand why it takes you 30 years to never seem to become a millionaire and they become billionaires virtually overnight…and why, when you are losing money in a downturn, the CEO of the company is still getting multimillion dollar bonuses.
In a seminar I attended, one of the students, hoping to get a hot tip, asked the multimillionaire presenter what stocks he invested in. His reply may surprise you. It surprised the student.
He replied, "None. I don't invest in the stock market."
The student was dumbfounded. In her view, in order to be wealthy you had to invest in the stock market. When she asked him why he didn't invest in the stock market, he laughed and said, "Because the returns are low and the risk is high."
She then asked him what he did invest in. He explained that he was a venture capitalist and he invested in new ventures before they went public.
The reason! He knew the truth.
He understood that when a company goes public, they create shares, often millions of shares that they will sell to the public, but they also create shares that they keep for themselves. Venture capitalists get a large portion of those shares because they bought part of the company before it went public.
Being a venture capitalist can be a great way to create wealth.
The problem is, you need to already have millions before you can become a venture capitalist and get in on the inside before a company goes public. So the only option left to us if we want to invest in paper assets, is to invest from the outside, which actually works against our ability to create wealth.
Why? Because...
YOU DO LOSE MONEY WHEN THE MARKET FALLS, REAL MONEY.
So called investment advisors keep telling you that when the market drops you really haven’t lost any money because you will get it all back when the market comes back.
That’s like telling someone that lost half of the trees in their apple orchard that they didn’t really lose anything because when the new seedlings come back they will have the same number of trees.
Are they serious?
What about all the apples that the old trees would have produced over the ten years that it takes for the new trees to mature?
They tout catchy slogans like “Dollar Cost Averaging” to make you believe that it is actually good news when the market drops because you are now buying stocks on sale!
Do they ever stop to listen to what they are saying?
Sure, we all love to buy things on sale, but any fool can see that being able to buy a few stocks on sale doesn’t come close to making up for half of your retirement funds getting vaporized. Yet, they talk like they honestly swallow this stuff!
They are quick to lay out the benefits of investing today instead of later and use solid financial principles like the “Time Value of Money” to sell you on the validity of investing early, which is true.
What they don’t tell you is that sustaining losses in the market throws the “Time Value of Money” in reverse, so it actually works against you instead of for you. They don't mention that losing in the market can not only put you back at square one, it can actually put you at negative one or negative two, etc.!
They are quick to paint a rosy investment picture by showing you the "Average" return of the market with slick graphs that show a steady upword curve that leads you to the financial promised land.
There is only one problem...
"AVERAGE" RETURN IS NOT THE SAME AS "ACTUAL" RETURN.
Not understanding this concept can wipe you out financially.
The "average" American family has 1.8 children. Yet no "actual" family has 1.8 children. I've never seen a .8 child, but I have heard about them - in the National Enquirer.
Humor aside, the same holds true for investing. Since 1902, the Dow Jones Industrial Average has an "average" return of 7.74%, but an "Actual" return of on 5.87%.
How can this be?
Because "average" and "actual" are really two very different animals.
To help you understand, lets pretend for a moment that I am your financial advisor. You give me $100 to invest and the first year you lose 50% and end up with $50 at the end of year one. In year two, your investment will have to grow by 100% for you to just break even. So lets say it does that.
At the end of year two you get a 100% return and you are back to $100.
You come to meet with me to review your investments. We sit down and I explain that the first year your return was -50% and the second year it was 100%. To get the "average" return we add -50% to 100% and get 50%, then we divide 50% by 2 years to get a 25% "average" return.
I slap you on the back and congratulate you for doing so well in the market, hoping that you don't realize that if you started with $100 and ended with $100, your "actual" return is really 0%!
Now you understand that when investment advisors base their projections on "average" returns of 5%, 10%, 15%, 20% or whatever, what they are saying is meaningless.
It really is absolutely meaningless! Why?
Because you can't make a prediction based on "average" return. When risk of loss is part of the equation, there is no way that you can even determine a relevant projection!
To illustrate this point, I am going to tell you a sad story that happened during the dot com market crash of 2000. One of my coworkers parents had invested in the bull market preceding the crash.
Their funds had "averaged" 20% for several years and had grown to approximately $1 millon. They excitedly started planning for their retirement, thinking that they could live on $150,000 a year and still have $50,000 a year left over with their 20% "average" return.
Then the market tumbled. In three weeks they lost $500,000! How do you project what your income will be when you lost 50% in 3 weeks.
You can't. And that is precisely my point.
Projections made by investment advisors are meaningless when there is a risk of loss. There is no way that you can make projections when you are invested in the stock market...and neither can your investment advisor. It is impossible!
Which is why the steady upward curve to the promised land is in actuality a roller coaster ride that few people have the stomach to endure. But that roller coaster ride never seems to make your financial advisor the least bit queezy. I wonder why?
Maybe it's because...
YOUR INVESTMENT ADVISOR MAKES MONEY WHETHER YOU MAKE MONEY OR LOSE YOUR SHIRT!
Most investment advisors charge management fees to manage your funds, typically 1.5% to 5%+ depending on the firm. So if they show you a gain at the end of the year of 5%, you really gained 6.5% to 10%+, and they graciously took their fee off the top before calculating your gain.
But what happens when you lose in the market?
You guessed it. These guys don't work for free. Your 5% loss becomes a loss of 6.5% to 10%+.
And that's not the worst part! Many investment advisors also make commissions whenever you buy or sell stocks. A business professor told the story of his first experience investing in the market. He started with $100,000 and trusted his learned advisor. When his advisor said to buy, he bought. When he advised selling, he sold. Within 2 years all of his money was gone - paid out in commissions on all that buying and selling.
Which brings up an even bigger problem.
CORPORATE CEO'S AND INVESTMENT ADVISORS ARE NOT WORKING FOR YOU.
They are looking out for themselves first and in most cases they make their money whether or NOT you make money.
In the last few months, most investors in paper assets have learned the hard truth that most and sometimes ALL of the money you invest can be lost - all of your sacrifice to scrimp and save and invest can vanish.
They have also learned that Corporate CEO's aren't always looking out for the stockholders...even the investment advisors are willing to lie to convince you to buy junk stocks in order to make their commissions.
If you know what you are doing, investing in paper assets does have upside potential. But, investing in paper assets is very complicated, involving a number of factors that even the lifetime professionals don't always get right - and if you don't get everything right you could very easily be left with nothing at the very time that you need it the most.
Which brings us to the most important point...
TO CREATE WEALTH, YOU HAVE TO TAKE THE RESPONSIBILITY, NOBODY ELSE WILL DO IT FOR YOU.
You can listen to the Wall Street brokers who make their money whether you do or not - or you can learn truth and use that truth to analyze investments for yourself. By taking responsibility for money, you empower yourself to do what no one else will - make decisions that are in your best interest!
Have you ever considered ways to protect your assets from the risk of market loss?
Experts project that most Americans could pay up to five times more taxes because they are investing in 401k’s and IRA’s that defer taxes. Will taxes go up in the next 30 years?
Is it possible to grow your assets where funds can be received tax free?
Can you utilize your funds without bumping into a higher tax bracket?
Can you keep your Social Security Benefits from being subject to taxation?
Can you access your money before age 59 1/2, without having to pay taxes and penalties?
Can you contribute more than $5,000 a year?
Are your assets at risk of litigation, judgments or garnishment?
If you need inpatient care, are your assets protected from Medicaid and Medicare?
Is it possible to make your assets judgment proof?
Our mission is to bring financial freedom to American families through effective education, superior tools and expert service.
Unless you have a real financial education, you really can't make educated decisions about what is best for your financial future.
Are you interested in receiving a real financial education?
Would you like to receive a Free Personal Investment Review from our team of financial professionals?
Call 435-669-2495 to schedule your free consultation or to receive a Free Personal Financial Profile click here.