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Active V. Passive Investors June 10, 2008

Posted by shaferfinancial in Uncategorized.
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Two weeks ago I blogged on mutual funds and last week it was on EIUL’s.  This post is about consumer behavior.

Of all the propaganda that comes from Wall Street, probably the most insidious is the suggestion that one can be an automatic/passive investor.  Just throw some money on a regular basis at a mutual fund and all will be well, financial advisors scream.  Leave the investing to the “pro’s,” you just need to trust them to do the job they are so well paid to do.  You don’t need to learn anything about stock investing, I will manage your money, just trust me!  Poppycock!

Study after study proves the opposite.  Professional money managers as a group underperform the market every year.  The majority of mutual funds underperform the market every year.  Those that out perform the market for a while, underperform the market over the next period of time.

So they tell you to invest in index funds designed to mimic a stock index.  Although these index funds do better than actively managed funds, they still have both significant expenses and tax consequences.  Recently Wall Street has been talking about investor psychology, blaming poor consumer behavior for the poor performance of most people’s portfolio’s.  But here is the kicker, even when people turn their money over to financial planners and/or investment managers they do badly.  In fact there is some research out there that suggest that the do-it-yourselfers do better than the folks who turn to professional help.

So what is a person to do?  First, you better take control of your investments/retirement planning yourself. Secondly, you should turn off all the unsolicited investment advice coming at you from the mass media whether it is a 24 hour cable network, magazine, info-commercial, or other outlet.  Third, take the time to turn yourself into an expert.  Finally, separate from herd.

Consider this a tall order?  Well, it is.  Mainly, because it takes tremendous will power to re-program our brains to think outside the box.  Then after you re-train your brain you must spend considerable time researching wealth creation.  Finally, you must change your understanding of and reaction to risk.

I know all this because I had to accomplish all of it myself.  I had to take a real good look at my investments and my wealth creation.  A strong dose of reality that was!  Once I realized what I was doing wasn’t working, then I had to spend much time researching why, and what works for other folks.  Finally, I had to find the courage to do something different than what every financial expert and my friends and parents all had told me was the way to go.  It was a very painful and time consuming experience.  Every grain in my body rebelled along the way until finally the results were obvious.

The road is long and painful for folks breaking away from the herd unless they find a mentor.  That is why I created the Shafer Wealth Academy (www.shaferwealthacademy.com).  It is designed to bring people through the process; emotionally, psychologically, and intelligently.   I have a suggestion for folks.  Take a real hard look at your wealth creation.  And if you find it wanting, come to me.  It will cost you a little bit, but think about what the alternative will cost you.  Imagine if you fail to create enough wealth to get you through your retirement years.  That will be a bitter pill for many to swallow.  It is avoidable, but you need to become an active investor.  The results are simply to important to be passive about.  The results are to important to depend on some so-called expert.  Make yourself the expert.


Recently, I have talked to several folks who have seen their income curtailed because of the current economic environment.  They stated they wanted to join the academy, but were afraid to take on any more expenses.  I feel for them, I really do.  But it is exactly that attitude, that fear no matter how based in reality it is, that will always keep them from producing real wealth.  If they had a wealth creation plan, a real plan that allows for the bad days as well as the good days, they would be emotionally in a completely different place.  A place that understands abundance not scarcity, a place that engenders courage not fear. My clients can measure how far along their wealth building plan they are and get that good feeling because they are progressing.  Join us!



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