We are Wall Street and We Must Change

The time for passive investing is dead.  We have to face it.  You can no longer mindlessly place your money into a well diversified fund or portfolio and expect a 10% return anymore.  You also can’t give your money to a financial planner and turn your back while he dogmatically does essentially the same thing.  The financial planner crowed pushes the strategy of invest and forget.  Don’t pay attention to the daily changes, they say, just peek in every six months to simply check if you’re maintaining the predetermined mix of stock to bonds, small cap to large cap. 

Everyone on Wall Street justifies themselves by what they’ve done in the past.  Don’t look at what I’m doing now that is too complicated, simpleton, just look at my returns over the past 5 years and believe.  Could you imagine trying to get financing for your business by just telling the bank or investor what you made last year.  No… they want to know what you’re doing this year and what you plan to do next year.  This is how Bernie Madoff managed to pull off his unbelievable scam.  For the life of me I do not understand how he fooled so many supposed experts for so long.  The man did not trade a single stock for the past 13 years.  And, a bunch of so called experts steered their clients to him because he put out statement every year that showed he was making money.  No one apparently took the time to see where this money actually was and that it added up.  Nope, they just figured someone else would do the checking for them.  They hired experts, they thought, so they don’t need to do anything.  Well, unfortunately, if you behave like a simpleton then you shouldn’t get mad when the insiders treat you like a simpleton.

The fact is that more and more people are becoming responsible for their own retirement.  That means there are more people with IRA’s and 401k’s, and they are investing in the only place they think is safe, the stock market.  I think a major reason for this financial crisis is that there was just too much money chasing too few stocks, and too many people not paying attention to their own money.    

Wall Street is not dead by any means.  It is just drastically changed; at least I hope it will be when the smoke clears.  And, if you have money in the stock market then you are Wall Street and you need to change.  You are going to have to take more responsibility for your wealth.  You are going to have to consider other investments and you are going to have to get your hands dirty. 

Sure, keep your stocks and bonds but consider other investments too.  I am amazed by how many people look at me like I’m crazy when I tell them to use their 401k to buy an investment property.  No, that’s too risky.  Risky?  You’ll buy a blue chip stock at 25 times the “projected” earnings and the company is so laden with debt that if they run into major problems and have to sell their assets they won’t be able to pay back 2% of what you paid for the stock.  You can go buy an investment property at 8-10 times the projected earnings, and there are no gimmicks in those projections.  Rental rates are pretty well documented for a given area.  Or, consider finding a broker and investing in private mortgages for investors.  That is a great investment.  It doesn’t have to just be real estate there are many places to put your money, but you have to do your homework.  Don’t dismiss something off the cuff as too risky.  Don’t dive in headfirst on an investment that looks good.  And, whether you invest in real estate or any other investment, stay on top of the market.  If the real estate market starts looking like 2005 again then you need to know enough to get out or at least stop buying.  There is no such thing as easy money.  There is no such thing as just letting your money work for you.  At best, your money is only capable of working with you.  Make no mistake; however, you are going to have to work.