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by Teeka Tiwari
Most investors do worse than the broad market indexes, year in and year out.
You can see what I’m talking about in the chart below. It shows returns by asset class over the previous three decades…
From 2002 to 2021, the average investor has seen a paltry 3.6% return. That’s a fraction of the 9.5% average annual return of the S&P 500.
All of these people aren’t stupid. So why are they doing so badly when the market is reaching new all-time highs?
It’s because they’re completely misled.
They’ve been fed so many myths… for so long… That they simply don’t see what’s right before their eyes.
And it’s not their fault. Wall Street has a multibillion-dollar incentive to spread these myths.
Today, I’m going to dispel three of Wall Street’s biggest myths. And in the process, I’ll tell you about another path to reach your retirement goals – 500x times faster than the market.
Myth No. 1: Asset Allocation Means Choosing Between Stocks and Bonds
Since I took over The Palm Beach Letter in June 2016, the portfolio has posted an average annual return of 129%. Over the same span, the S&P 500 has logged an average annual return of 13.5%.
That’s right… Over the past eight years, our Palm Beach Letter portfolio has beaten the overall market by an average of almost 10x per year.
How do we continue to crush the market like this? The answer is asset allocation.
Asset allocation is just a fancy term for dividing up your portfolio among different types of investments. And if you were to talk to any reputable financial adviser, it would come up right away.
The adviser would probably tell you that asset allocation is the No. 1 factor in how much money you’ll make from your investments over your lifetime.
Yes, this much is true.
Studies show that roughly 90% of your overall returns come from asset allocation… not the individual investments you select. If you’re invested in the wrong places or the wrong amounts, your returns will suffer greatly.
For proof, think about someone who only holds cash over 40 or 50 years. There’s simply no way they’ll maintain their buying power as inflation and most other assets rapidly run higher.
However, the myth is what the adviser says next.
It’s almost certain that you’ll begin discussing various rules for dividing up your portfolio between stocks and bonds.
The classic formula is the “60/40” portfolio – a mix between 60% stocks and 40% bonds, just as the name suggests.
But here’s the thing: Stocks and bonds aren’t the only assets out there. They’re just the ones that most Wall Street people understand. And the ones they get paid to promote.
Meanwhile, there’s a vast world of additional opportunities…
Gold, silver, and other commodities. Real estate. Private businesses. Collectibles. And, of course, cryptocurrencies… which are essentially a brand-new asset class that has emerged within the last decade.
So the stocks versus bonds discussion is a completely false dilemma. And the person who only sticks to those two particular assets is like a person eating meat and potatoes for breakfast, lunch, and dinner.
It’s not only boring… It’s hazardous to your health.
This brings me to…
Myth No. 2: You Have to Take More Risks to Make More Money
This is a natural byproduct of the first myth.
When you limit yourself to stocks and bonds, you’re limited to how well those two particular categories perform over any given time.
That’s risky enough.
After all, history shows that the classic 60/40 portfolio returns 7.4% per year. That type of result will hardly change your life. It’ll barely keep your head above water.
Yet Wall Street wants you to believe this is the only path for you to reach your retirement goals.
Most investors know this, and they want more.
But when they limit themselves to stocks and bonds, there’s only one way to try for better returns…
They have to put too much of their money into a smaller number of investments. More often than not, they pile into extremely speculative stocks and wild momentum plays.
Yet very few find success.
When they get it wrong, they lose… big time.
These failures prove that even the most sophisticated strategies often blow up because of improper asset allocation.
Of course, they also illustrate the worst part of the Wall Street myth machine…
Myth No. 3: You Need to Pay for Performance
Wall Street is like a bloodthirsty vampire. It wants to latch on to you and squeeze all the money out of you…. and bleed you dry with fees.
And if you let it, it’ll suck the life out of you.
After all, if you go into that adviser’s office to talk, you’ll pay good money to get your (flawed) asset allocation plan.
Then you’ll pay more money to buy and hold the recommended stock and bond investments – through commissions, fees, and other hidden costs.
If you want to try and do better than the markets, you’ll be charged even more. That’s because actively managed funds carry higher fees than index funds even though more than 50% don’t beat the market in any given year.
In fact, over the last 10 years, a full 91% of all active large-cap stock funds did worse than the S&P 500.
Meanwhile, hedge funds will typically take 2% of your money every single year just for letting you participate. Then if they make money with your capital, they’ll take 20% of those profits, too.
That’s why Wall Street wants you to follow its path of investing. Because that’s how it robs you blind with fees and lines its pockets.
According to our research, Wall Street firms make at least $457 billion a year in fees. I’m talking about performance fees… incentive fees… fees you don’t even know about.
All of this stuff is justified by the idea that better performance costs more money.
Well, that just might be the biggest myth of them all.
In fact, every single one of Wall Street’s fees and commissions further reduces the subpar gains you can typically expect to receive.
Put another way, you automatically start with a negative return.
So you aren’t paying for performance. The paying itself hurts your performance. It’s really pretty simple.
When you buy into the standard Wall Street myths:
You severely limit your investment choices.
This causes you to take much bigger risks to try to move the needle on your net worth.
And to add insult to injury, you further hurt your performance by forfeiting more money just to get worse results.
Friends, I want you to really think about this…
If you buy into these Wall Street myths… If you play Wall Street’s suckers’ game of waiting 30–50 years to build wealth… I’m afraid you may never be able to retire.
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