Diamonds and Dogs #20

Nov 20, 2013 by

In each post of the Money Counselor “Diamonds & Dogs” series, I pick three items—an article, a website, a video, an image—that in my humble opinion would be especially valuable—the Diamonds—in helping Money Counselor readers make better money choices. And to contrast with the three Diamonds, I pick one lame item—the Dog.

money idea gems3 Diamonds

  • Jon at Novel Investor recently published a highly readable and comprehensive post titled “Roth IRA Rules: Everything You Need to Know.” This is one of those rare articles you should bookmark and store in your ‘financial reference material’ folder.
  • My cyber-friend Travis at Enemy of Debt and his spouse are nearing the end of a nearly unbelievable challenge: paying off $109,000 in credit card debt through a Debt Management Plan. At the recent $100,000 pay off milestone, Travis understandably gets emotional in “How Does It Feel to Pay Off $100,000 in Debt?” reflecting on what he and his wife have overcome to get where they are today, which is very nearly credit card debt free. Travis’ story shows that anybody can pay off their high-interest debt if they make the commitment.
  • Rent-to-Own deserves a special place in bad personal finance hell. Claes at Bargaineering takes no prisoners in his unambiguous “Rent-to-Own Sucks, and You Should Never, Ever Do It“.

 

 lame money adviceA Dog

In October Bloomberg reported on “How Investors Lose 89 Percent of Gains from Futures Funds“. The story describes how Wall Street stalwart Morgan Stanley marketed an alternative investing product called “managed futures.” With the S&P 500 down 41 percent at the time, Morgan Stanley sought to exploit investor anxiety with statements like this (from the fund’s Prospectus, according to Bloomberg):

If you’ve never diversified your portfolio beyond stocks and bonds, you should know about the powerful argument for managed futures… Managed futures may potentially profit at times when traditional markets are experiencing losses.

Over ten years ending in 2012, 30,000 investors sank nearly $800 million into a managed-futures fund called Morgan Stanley Smith Barney Spectrum Technical LP.

The good news? Over that decade, the fund earned $490.3 million in trading gains and interest income.

The bad news (for investors)? Commissions, expenses and fees paid by investors to fund managers and Morgan Stanley over the same period totaled $498.7 million.

The bottom line: Fund investors lost $8.9 million over the decade while Morgan Stanley made nearly $500 million over the decade from the Fund.

And here, friends, in a nutshell we have Wall Street’s business model, which has been replicated to massive proportions.

  1. Induce investors through clever marketing to turn over money to Wall Street’s control.
  2. Do something with investor cash, ideally something novel (i.e,. invent a new and exciting gambling game)
  3. Charge investors huge fees.
  4. Repeat ad infinitum.

Nominations Please

Do you have a nomination for a Diamond or Dog? Send it to me please. I’ll give you credit if I use it in a “3 Diamonds and a Dog” post.

Digiprove sealCopyright secured by Digiprove © 2013 Kurt Fischer
  • Travis Pizel

    Thanks for the mention, Kurt….it’s been quite a ride and I hope my story can help show people that they CAN get out of debt, no matter how deep they are!

    • Your story is very inspirational Travis. You and Vonnie should write a book about your adventure!

  • Your Dog shows that the Wall Street marketers will do everything they can to separate you from your hard-earned money. People need to realize that it is very difficult to beat the market and that they should be happy with market returns minus fees. So keep fees low and invest in diversified passive index funds.

  • Jon | Novel Investor

    Thanks for the shout out Kurt! I hope its helpful. Stories like that Dog article don’t surprise me anymore. Wall Street/fund companies are here to make a profit first. The easiest way to do that these days is start a fund, managed or indexed, that play off investor fear or greed at that time. Yet, it’s no different then the low volatility funds introduced in the last few years. Are we really better off with an S&P 500 low volatility fund vs an S&P 500 fund? Doubtful in the long term. It’s a great reminder to your readers to dig deeper!

All original content on these pages is fingerprinted and certified by Digiprove