It's important to know what to invest in. But it's just as important to know
what not to invest in.
There are several reasons I'm not of a fan of blindly turning your money over
to a financial planner or "expert." First: you don’t learn anything. And second,
where they park your money (in many cases) is not necessarily in products that
are best for you. The products may be best for the planner and his or her
company--but not for you.
I would not invest in mutual funds. If you have a 401(k) plan and you don't
know what that plan is invested in, chances are high that your money is invested
in mutual funds.
Here is why I stay away from mutual funds.
I've heard many financial "experts" explain why mutual funds and 401(k)s are
the answers to our prayers. They say,
"If you are 20 years old today and you invest $1,000 into mutual funds or
your 401(k), and you earn 8 percent per year, when you retire at age 65 that
$1,000 will grow to $140,000."
That's the sales pitch.
Time for a Reality Check
Here's the reality on mutual funds. Keep in mind that these facts do not
come from me; they come from John Bogle, the founder of Vanguard, one of the
world's largest mutual-fund organizations. He is now speaking out against the
mutual-fund industry because it has gone from stewardship of your money to
salesmanship. Practitioners are focused on making money for themselves, not for
you, the investor.
According to Bogle, your investment will grow to $140,000 in 65 years, not 45
years. But what's really shocking is that you won't receive an 8 percent return
because the mutual-fund system will take about 2½ percentage points out of that
return. So instead of an 8 percent return, you receive a net return of 5.5
percent, Bogle says. Your $1,000 investment will grow to $30,000.
"One hundred ten thousand dollars goes to the financial system and $30,000 to
you, the investor," Bogle says. " That means the financial system put up zero
percent of the capital and took zero percent of the risk and got almost 80
percent of the return, and you, the investor in this long time period, an
investment lifetime, put up 100 percent of the capital, took 100 percent of the
risk, and got only a little bit over 20 percent of the return."
Another key point: The mutual-fund companies, the managers, the
salespeople--they all make money whether you do or not. Most are not concerned
with the actual performance of the fund; they are concerned about their fees.
That is why it is so important for women to get smarter with their money.
What a wake-up call it would be to find out your retirement nest egg shrank by
80 percent. That is the reality for many people today who were expecting to
retire at age 65 or older--only to find out they can't.
Who are you taking your financial advice from? A true advisor or a
salesperson?
It's Your Money. Take an Active Role
It all goes back to financial education. It goes back to your taking an
active role in managing and growing your money. It's not rocket science. There
are simple things you can do today to put yourself in charge of your financial
destiny.
Here's one: If you have a 401(k) and do not want to pay exorbitant fees,
Bogle recommends investing in market index funds. I'll leave the research up to
you. Research is a great step in the learning process.
So knowing what to invest in is important as you build toward your
financial security and independence, but knowing what not to invest in
can be just as important.
Remember: A Rich Woman doesn't depend upon someone else for her financial
well-being. And that includes advisors who are more interested in their fees
than the performance of the investments they are recommending.