Are Investors Asking the Right Questions?

“If they can get you asking the wrong questions, they don’t have to worry about answers.”

– Thomas Pynchon, Gravity’s Rainbow

Financial and political power congregates on Wall Street… epicenter of the American financial universe and the subject of many a movie about the ruthless and the rich. Few people question why Wall Street holds the purse strings of our nation. To the average American investor, putting your money into stocks, bonds, and mutual funds is just “what you do.” Rarely do we ask the right investment questions.

Investing (or should we say, speculating) in the stock market is exactly what approximately 120 million Americans do—often, without questioning why. There may be other options, but few seek them out. According to a 2022 Gallup Report, 89 percent of American adults with an income greater than $100K have money in the stock market. 58 percent of all adults have money in stocks, regardless of income.

Many of these accounts are through 401(k), IRAs, and other qualified retirement plans. By far, the most popular “default” option for such retirement plans is now target-date funds. These consist primarily of equities, blending stocks (index funds, mutual funds, etc.) with an increasing percentage of bonds as fund owners reach their targeted retirement age.

Uncomfortable Investments Questions for Wall Street Bankers and Power Brokers

A little-known fact that ought to make investors furious: The Department of Labor actually changed the default option for qualified plan investments from stable value funds (a safe, steady investment that protects principle) to stock-based funds at the end of 2007. This happened just before the stock market started the long slide that deleted TRILLIONS of dollars from American investors’ accounts. However, few, if any, of the administrators, managers, and advisors who watched retirement accounts switch from stable to volatile funds raised questions or protests as to whether this was a good idea.

Then, stocks slid 50 percent from October 2007 to March 2009. Even the most (supposedly) conservative target-date funds for those retiring soon lost 23.5 percent. According to the Smithsonian, the average American household lost one-third of its net worth during the recession.

Meanwhile, the banks that received bailouts continued to pay executives bonuses totaling in the billions, according to a report from New York’s attorney general. And before and after the Financial Crisis, financial corporations spent as much as $100 million per year on lobbying to influence policy decisions and kill regulations that might have protected American investors.

Those who benefit from the nearly automatic and assumed funneling of dollars into the stock market would prefer that you don’t ask too many hard investment questions. Just repeat the mantra, “Max out your 401(k)” and don’t ask why you’re repeatedly instructed to put all your eggs in one risky basket.

The media—financially dependent on advertising dollars from financial firms — won’t ask the hard investment questions either. Instead, the marketing dollars that build top-of-mind awareness for brokerage firms tell YOU the questions to ask. Not surprisingly, these are the questions that encourage investors to keep handing over their dollars.

What Wall Street Doesn’t Want You to Know

Wall Street wants you to ask the wrong investment questions. They love when you ask things such as:

• “How much should I have in stocks vs. bonds?”
• “Which mutual funds had the highest returns last year?”
• “How much risk do I need to take to earn the rate of return I need?”
• “What target-date fund should I invest in?”

While you may think these are getting you closer to wealth, they’re obscuring some of the more important information you want to make an even better decision. Do you know how to demand the truth about your money? Most of us don’t. We let the media (and the popular financial gurus it promotes) shape our understanding of financial philosophies, strategies, and products, rarely to our own benefit.

Investment Questions Investors SHOULD Ask

“Should I invest based on anticipated (or past) rates of return, or are there more important considerations?”

While the rate of return is important, you want to avoid losing the money you’ve worked so hard to save. You must consider safety, liquidity, tax treatment, how much control you have over the money, cash flow, and more.

We think it’s a little crazy to speculate in a market that nobody can predict or control… and to pay fees and taxes in order to do so! Yet that is exactly what Wall Street offers. The fine print warns that “past results are no guarantee of future performance,” and you should take heed. People who build and keep their wealth do not chase unrealistically high rates of return or take risks lightly. In truth, more risk doesn’t equal more reward. Risk is the likelihood of loss… so more risk equals more risk.

“How can I ensure my money grows regardless of market fluctuations? Are there even better investment choices than stocks and bonds?”

Yes, but you’ll never discover them if you’re listening to Wall Street or “typical” financial advice! The question they hope you’re asking is, “How much do I allocate to stocks, and how much to bonds?” When you ask a brokerage firm how to balance their limited products to manage your risk, you’ve played right into their hands. Instead, consider that the stock market may not be the best place to invest your hard-earned money after all.

Instead, start asking, “How can I avoid the peaks and valleys of the market altogether?” Then consider Prosperity Economics, a philosophy that teaches investors to avoid the risks of investment gambling, and consider financial products outside of the stock market. For example, traditional options such as life whole insurance, real estate, business, mortgages, and other lending environments continue to provide less volatile options—sometimes at higher returns than the stock market is delivering.

Brokers will never educate you about these products—even if they invest in them themselves—because their firms don’t offer them. (They can actually lose their jobs that way!)

“How will taxes and fees eat into my investment returns?”

Unfortunately, your advisor will probably show you charts and graphs that will show the “potential” of an investment, yet not the real returns. You’ll have to ask the tough questions—or use your own calculator—to get the whole truth. One of our books, Busting the Retirement Lies, outlines how taxes and fees can gobble entire chunks of the typical 401k—even more than half! You have to read and see it to believe it—and with illustrations from Truth Concepts software in the book, you can do both.

Remember—it’s not what you make, but how much you keep that counts.

“How do I know you operate in my best interests?”

Wall Street wants you to ask, “What mutual funds do you recommend?” instead of whether or not the advisor works from a fiduciary platform. Recent research estimated that 85 percent of advisors who teach, sell and advise about retirement accounts do not operate from a fiduciary platform, but rather from a suitability platform. That means that there is no law requiring them to suggest the best choices for you, regardless of their own compensation. Your recommendations just need to be “suitable.”

“Can I collateralize this investment, if wanted?”

Consider the following…

Stocks and mutual funds: 

Sometimes, brokers allow a 50 percent (maximum) loan against a mutual fund investment in order to purchase more mutual funds. However, in addition to fees and interest, you could lose big time if a margin call happens. The brokerage can sell your shares to collect interest, fees, and losses above the loaned amount.

401(k) loans: 

At some companies, employees can borrow the lesser amount of 50 percent of the account balance or a maximum of $50,000. If the person leaves, he/she must repay all the borrowed money in 60 days (using after-tax dollars, of course).

Real estate: 

Often, up to 80% of a home’s value can be borrowed or re-mortgaged… sometimes more for owner-occupied homes, typically less for rental properties or borrowers with less than excellent credit or unverifiable income. Purchase loans go as high as 96.5–100% with FHA or VA loans.

Cash value in a whole life policy: 

A policyholder often can borrow up to 95 percent of the policy cash value from the insurance company. Annual interest applies but you can repay the loaned amount on your own schedule. This is tax-free money (unless you cancel the policy). If you die before a policy loan is repaid, the borrowed amount is deducted from the insurance payout to beneficiaries. Many policyholders also love the ability to use their policy for collateral at a bank for excellent rates.

The strength of an investment can be measured by if and how you can collateralize it. (We call it “the Leverage Test.”) Through this lens, stocks and mutual funds only fare better than gold (which is easier to buy than sell) and collectibles that only a pawn shop will take.

“How can I maintain control of my own money?”

The financial system enables money managers to control the money YOU invest. What are your mutual funds invested in? Where are your target-date funds allocated? Few investors have any idea, and even the money managers making the decisions have no control over the market or its returns.

Wall Street loves investors to ask which fund has the lowest fees because then you’re not thinking about how to avoid fees; you’re looking instead for the smallest fees. However, even small fees add up over time as the fees—and your opportunity costs—compound.

Astoundingly, the average American household often pays six figures in “little fees,” according to “The Retirement Drain,” a study published by public policy organization Demos. In Busting the Retirement Lies, we were shocked to see that the fees paid to brokerages can add up to more than the total contributions to a retirement plan!

Frontline’s investigation, entitled “The Retirement Gamble.” was an eye-opener about Wall Street and how much of “your” investment nest egg may be going into someone else’s pocket—with no guarantees for you! It’s an excellent expose, however, the program stops short of recommending real solutions.

What are the OTHER options to “financial planning as usual”?

This is perhaps the most important question investors should ask! And we have an answer you should consider. Prosperity Economics empowers individuals to build wealth and financial confidence while maintaining control of your financial strategy, beliefs, and investment choices. We don’t believe in abandoning control of your money to someone on Wall Street who may not have your financial back.

To find out more about Prosperity Economics strategies to build wealth without Wall Street, download our complimentary Prosperity Action Pack and read our resources on whole life insurance, savings, and certainty. You’ll learn about what we use instead of savings accounts, bank CDs, stocks, and bonds.