Investment Strategies / Mechanical Investing❤
No. of Recommendations: 12
Financial parasites are those that target your money, without really giving something in return. There is a huge network of these parasites, disguised pleasantly with black ties, expensive watches, and confident pleasant behaviors.
Let's discuss how financial parasites have a profound effect on eliminating your wealth. They create traps, that look attractive, but constructed to destroy you. Their job descriptions include lawyers, bankers and financial consultants.
Whilst searching to compound our capital, others are searching to steal from you.
We must be vigilant to avoid being targeted. Parasites should be avoided. Almost in linear proportion, as your wealth increases, you will become surrounded by increased attention from parasites.
You need to understand how to avoid this systemic phenomena in order to preserve your capital.
Also, taxation is fairly often discussed generally, such as how to minimise it, however it is discussed far less in the investment context. The difference between an untaxed 10% return, and a 6% (after tax) return is absolutely enormous after inflation. For example: After inflation of 4%, the untaxed real return above is down to 10-4 = 6%, and the after tax real return is 6-4 = 2%. The difference in this case (if tax could be avoided) is three times more wealth accumulation each year.
Some of these parasites we cannot avoid, but we need to choose the least bad (for example, a currency broker may have much lower currency spreads than a bank, which in turn may have better rates than a lawyer, or worse again - a banking/lawyer partnership).
How do you manage to escape from this system of parasitical relationships?
Let's discuss how to spot them and eliminate them, and ideally remove them at the root so that they cannot attach to you from the start.
By doing this, you might not seem to save a huge amount amount instantly, but over much time avoiding parasites has an enormous positive effect in how your after-inflation, after-tax, capital compounds.
Lady E
No. of Recommendations: 3
Investment advisors are a pet peeve of mine. I know only one investment advisor who beats the S&P 500 index after fees. Recall Warren Buffet's 10-year bet with a fund manager. The fund manager chose five funds of hedge funds, and Warren took an S&P 500 index fund. After ten years not only did the S&P index fund outperform the funds of funds after fees: it outperformed the funds before fees. When I donate money to charities I always look at their investment management fees, shown in the Form 990. Most charities spend or give away give 5% of net assets each year, but 1% of net assets or more goes to an investment manager. I try to specify that the money that I donate to charity be spent in the year in which I donate it so that investment managers don't get too much of it. After I die, though, I'll have to have another plan.
No. of Recommendations: 4
Not everyone has the time or knowledge base to manage their own investments, and the value of an investment advisor may not be found in their investment advice but rather in their financial planning advice. A family member recouped their annual fee with one bit of advice about how best to maximize their 401k contributions. They were leaving thousands on the table by hitting their max contribution limit before the end of the year.
I'm not a big fan of paying to underperform the market, I can do that for free, but comparing the returns of an IA against an index doesn't capture the full value they may provide clients.
This is by no means a recommendation of IAs, but rather a check on the criticism on their value based solely on their rates of return relative to indices.
No. of Recommendations: 2
Parasite is a rather strong term to use in general with dealing with people. Sure some in these professions are only interested in making the most money for themselves but a good attorney is very important in dealing with a lot of legal issues. People who try to avoid attorneys, real estate agents (some real marginal people in that profession as well), etc. and do things themselves sometimes find out their lack of knowledge can cost them a lot of money in the long run.
I think some people get themselves into trouble when they assume a friend is knowledgeable in areas and then can't break themselves away from the person. I see this often with financial advisers and someone says to me 'Well they are a family friend' or something similar. I don't believe in mixing business and family/friends. And sometimes you can start off in a business relationship but then you start to feel like the person is more of a friend. That can also lead to trouble when you realize you aren't getting your money worth.
I think one of the best ways to save money is to avoid lifestyle inflation. This is when people start adding things to their lives w/o realizing it is adding up to a sizable sum of money that could be going into investments. People who feel like they need to hire housekeepers, need fancy items around the house they barely use, etc. Often things they want to keep up with the Joneses. Cars are a big waste of money. Others need the fancy shoes, jewelry, etc. I'd rather spend the money on life experiences like vacations, travel and also to have enough in the bank where I don't have to worry how to pay for a car accident or a medical emergency. There are tons of people out there living from paycheck to paycheck. In some cases due to very low earnings but in more cases than you think, it is due to excessive spending and thinking they deserve a certain lifestyle.
