How Investing Became an Entertainment Industry
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One of the biggest investing lies keeps you paying fees and losing money
Why does the average investor earn just 4.6% a year on stocks when the market grows 8% plus on average? Because Wall Street and the so-called investing experts lie to you.
This is the first in our five-part series, the five biggest lies told to investors. I’m starting with one of the biggest myths in investing and why you’ll never reach your investing goals if you fall for it.
Turn on almost any investing show or blog and they’ll try telling you that investing is about the investment. What stocks you buy, how to get rich in real estate or bitcoin or whatever.
It’s bull and it’s going to keep you from making as much money as you should. Let’s look at why Wall Street lies to you on this one first and then why it’s bunk and what you can do to be a better investor.
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Why Wall Street Lies to You about Investing
So why would all the investing channels, all the investment analysts and experts want to lie about a basic rule of the stock market?
Why do they want you to think investing is about what you invest in?
Two reasons…both are about the money.
First, because investing is an entertainment industry.
It’s not about you making money, it’s about promises of getting rich. It’s about some TV personality throwing shit at the camera and leaning on a button that makes crazy noises.
That’s what keeps you coming back for more and that’s worth billions in advertising dollars.
The second reason Wall Street lies to you is because how do you think they make money? Brokers make money when you buy and sell. They get a commission from every share you buy and sell.
I was part of this machine. I managed a team of six investment analysts in a sell-side research department for a venture capital firm. Now sell-side research is just a bunch of analysts sitting around pumping out free stock research. The company then uses this research to get investors excited about buying and selling stock.
The more excited you are, the more often you buy and the more commissions the company makes. This is a big part of Wall Street.
The Truth about Investing Lies
It’s great to find that hot stock and make those triple-digit gains. Shares of Facebook jumped 50% last year and we won’t even talk about the 20-fold explosion in Bitcoin.
But one investment doesn’t mean jack to a goal of lifetime wealth. Making a 50% return is spectacular but it’s insignificant in reaching your investing goals.
Think of it this way. You have $100,000 and want to get to $1 million by the time you retire in 20 years. You have your money invested exclusively in 20 stocks, so $5,000 in each. Even a 50% return on a stock is only a gain of $2,500 – that’s not bad but you’ve still got $897,500 you still have to make.
So Joe, that only means I just have to pick the right investment for all of my portfolio and keep doing it over the next 20 years.
Yeah, that’s not going to happen. It’s thinking like that, chasing stocks and always trying to find the best investment that’s the reason the average investor only makes 4.6% annually even as stocks produce double-digit gains.
A better way of investing isn’t the what, it’s not the investments you pick but the ‘how’ you invest.
This means how you match your investing goals with your investments, how much you put in stocks, bonds, real estate and other investments. It means how often you invest and how you take advantage of the free money in tax-advantaged retirement accounts.
Now I know this isn’t nearly as sexy or exciting as picking a stock that supposedly will double your money but this is what real investing is all about.
How to Beat the Market Myths and Win
We've talked about a few of the stock market basics that will make you money and stop you from falling for this investing lie. I go into detail in the video but thought I would link to a few of the best articles to give you more information.
Asset allocation depending on your age – Investing changes as you get older. It's one of the most important concepts in investing but most people neglect it. Investors are trained to always be chasing that next hot stock pick. They never realize what it's doing to their portfolio and soon enough, 30 years have passed and they're cleaned out by a market crash just before retirement.
Max out money retirement accounts each year – retirement investing is the easily the best return you'll ever make. Not only will you get free money from your employer but the tax break is like an immediate double-digit return. Don't put a penny in a regular investment account until you've maxed out your annual retirement contribution.
Use the Core Satellite Investing Strategy – This is an easy way to get instant diversification and lower your investing fees. If you're looking for a stress-free investing strategy, this is it.
Avoiding the investing lies and following these three stock market basics will make you rich like stock-picking never will. Follow these three investing rules and you won’t get sucked into a lot of the bad investing decisions people make because they’re focused on the ‘what’ of investing.
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