Posted on 12/28/2005 6:35:41 AM PST by Flavius
Many of Wall Street's elite firms were being required to pay tens of millions of dollars in fines to investors, according to media reports. The penalties are for alleged bad investment advice, courtesy of New York State Attorney General Eliot Spitzer.
This brings me to one of my favorite quotes from famed investor Warren Buffett goes: "Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway."
I have been highly critical of the standard financial planning advice -- "work hard, save money, get out of debt, invest for the long term, and diversify" -- for a long time. Such guidance is often more a financial advisor's (subway rider's) sales pitch than a solid investment guide.
But while I think it's courageous that Spitzer slaps millions in fines on a few Wall Street firms for their bad investment guidance, I believe the investors who accepted that unsound advice have some responsibility, too. Isn't knowing the difference between good and bad advice part of knowing what you're doing?
The Difference Between Investing and Shopping
The problem is, most investors don't know how bad the standard investment advice is. This mantra of "work hard, save money, get out of debt, invest for the long term, and diversify" is followed by millions of investors -- who lost $7 trillion to $9 trillion between 2000 and 2004. Many are still following this bad advice today.
Not only did millions of investors lose trillions of dollars, many also missed the boom in real estate, oil, gas, and previous metals. Furthermore, despite investors' huge losses, Wall Street paid out some of its biggest bonuses in history.
However, investors should realize it's "buyer beware." Investing is different from shopping. If I go to Sears and don't like the tool or shirt I purchased, I can generally get my money back. When we go shopping, we expect value for our money. But when we invest, we do so in the hopes of making more money -- and knowing that we risk making losses. What would happen to the financial industry if brokers were sued every time a client lost money? The wheels of world commerce would grind to a halt.
My point is: The world is filled with honest people handing out bad advice. An example of honest bad investment advice is the standard one of "work hard, save money, get out of debt, invest for the long term, and diversify".
The world is also filled with biased advice, which is why people say, "Never ask an insurance broker if you need insurance, or a mutual-fund sales person if they recommend mutual funds." Furthermore, there are many crooks and con artists as well, who intentionally promote dishonest ventures.
Spotting the Difference
So while it's imperative that we have the Securities and Exchange Commission and a brave Attorney General such as Spitzer to enforce the rules, we, as individual investors, still need to be vigilant and personally responsible for the advice we receive and what we do with our money.
In my opinion, that means each of us needs to be responsible for our own financial education so we can tell the difference between good advice, biased advice, and crooked advice. If you can educate yourself to know the differences between those three types of advice, getting rich is easy.
Or, if you take investing advice from a subway rider, don't be surprised if you wind up on the subway.
interesting pov. in my own life, i have always been leary of professionals advice. there is always an axe to grind. now if i too want that axe to be grinded, ok. but if not, then i do my own thing. its my money, not theirs.
Wall Street is also the only place where customers buy the product only after it has been marked up and never after it has been marked down.
Looks like someone uses a spell-checker, and doesn't check for themself.
Excellent article capturing part of Kiyosaki's message. The mantra of "go to school, get a good job, stay out of debt, save money and put money in a 401K" is industrial age mentality still followed and taught in our schools. That is flat out wrong in today's world. By investing in a 401K you have alreadu accepted the premise that you will be in a lower tax bracket when you retire than now. Who says you will need less money at 66 than at 65 ? You need 2 professions, one for you and for your money. Never take financial advice from someone that works for soemone else; that is 21st century slavery. This is the age of the entrepreneur.
yeah! everyone knows that is spelled 'mettles'
;)
or meddles
wow, that is a great reply. well said.
This guy is a snake oil salesman. His "advice" should be taken with a grain of salt. He makes his $$$ selling books about his supposed Rich Dad and Poor Dad. It's a good gig, for him.
"Not only did millions of investors lose trillions of dollars, many also missed the boom in real estate, oil, gas, and previous metals. Furthermore, despite investors' huge losses, Wall Street paid out some of its biggest bonuses in history.
Well, if you really did diversify, you would have had some of this stuff, right? Looks like their idea of diversification is to split your money between Enron, Qwest, and Yahoo.
I was truly diversified, and while I did lose some unrealized gains, I was still ahead after the slump. Now my oil stocks have come in, and I'm way ahead over all.
Bump
Agreed Kyosaki is a joke.
I'll give him kudos for inventing the whoe "rich dad, poor dad" marketing ploy and then bilking it for all its worth...
But he's basically like AMWAY... flash his wealth, convince you the money's in the product he's promoting you be involved in (in his case, generally real estate) but in reality is making the overwhelming amount of his money from Books and Tapes.
There is a reason that once you get past the first book or two of his series, its always someone else writing them.. because the mans a shill.
When you play with snakes.. don't be suprised if you wind up getting bit.
Kyosaki is all about selling books and tapes.
If you contribute 15% annually to your 401k, and have it spread across 4 good mutual funds, you are going to compound easily on average 12% a year.. over a lifetime starting at age 25 to 65 (40 years) on a 30k a year job, that NEVER goes up... you retire with $3.5 Million dollars, if that keeps you in a lower tax bracket more power to you.
And this is a loser who doesn't get a raise throughout his entire 40 year working career, and isn't even making the national median household income.
I have nothing against controlling your own investing, however to believe that the slow and steady approach to retirement is wrong shows a complete lack of understanding of Compound Interest.
Bad advice? Apparently, the author would have us believe that the formula for wealth creation is "laze about, spend money, pile on the debt, forget the long term, and put all your eggs in one basket."
So if you don't stay out of debt, save money and put money in a 401K... What should you do- put all your cash on #13 on the roulette wheel?? 401k's are ideal for most people as most will be in a lower tax bracket when they retire. Maxing out a Roth IRA first is a better bet as that will not be taxed at all. But alot of people can't put any money in those because they "make too much".
Bad advice? Apparently, the author would have us believe that the formula for wealth creation is "laze about, spend money, pile on the debt, forget the long term, and put all your eggs in one basket."
Have you read his books to make that absurd statement ? He does not advocate any of those things and is a strong believer in a strong work ethic. His message ia about taking control of your finances in terms of how you make it and how you invest it. What is so wrong with that ? Read his books so that when you make a comment about him you do not come across as a complete idiot and juvenile.
So if you don't stay out of debt, save money and put money in a 401K... What should you do- put all your cash on #13 on the roulette wheel?? 401k's are ideal for most people as most will be in a lower tax bracket when they retire. Maxing out a Roth IRA first is a better bet as that will not be taxed at all. But alot of people can't put any money in those because they "make too much".
If you plan to retire at a lower tax bracket then 401 K is right for you. I don't as I plan to make more money every year that I am alive so a 401 K is the not thee best vehicle for me. I also don't plan to work for someone else all my life so I come at this from a different set of core beliefs. Does not make what you do wrong, it jjust has different consequences long term that's all.
There is no better financial device than compounding returns. Sure, people get rich by other means, but most of those people are just doing something they love and the money falls into their laps.
That is something a DU'er would say. You really beleive that people get wealthy because they are lucky ? Compound interest is absolutely great but how about following a specific plan to get wealthy like starting a business, owning stocks or owning real estate for monthly cash flows. You can't seriously believe that all those are luck based programs ?
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