Tim Iacono at The Mess that Greenspan Made highlighted an interesting study yesterday from the National Bureau of Economic Research that concludes Americans are poor financial planners, bad investors and not taught very well.
From Iacono’s standpoint, Wall Street has millions of investors right where they want them – confused and reaching for yield.
He’s exactly right of course, and the epic financial chicanery and fraud from Wall Street have compounded our bad investment decisions by making us even more skeptical of anything concerning financial matters.
It was Wall Street icon Goldman Sachs after all that was massively short selling the same toxic crap CDOs it was aggressively selling to its clients – the equivalent of buying fire insurance on someone else’s house and then committing arson.
The bottom line: Trusting your retirement security to Wall Street and taking a “hands off” approach to your investments while financial “advisors” manage them for you (read “churn, burn, twist and overtrade”) is a recipe for disaster.
But there is a way for average Joes to partake in the cornucopia of bountiful financial harvest… Do what the super rich do.
The super rich are superior financial planners out of necessity — when your financial assets reach a certain level you become a huge target for tax authorities and Wall Street snake oil salesmen. And one important aspect of their planning is internationalizing their investments.
This means diversifying globally to protect against country risk – the changes in a country’s investment climate such as currency controls, devaluation, tax and regulatory changes, or stability factors such as civil war or riots.
In the past country risk was largely a game only for the super rich, as even relatively small changes in a country’s investment climate could wreak havoc on their assets.
But in today’s chaotic and tumultuous global economic environment, hedging country risk has become important for everyone.
What does that mean for us little people?
Don’t put all of your eggs in one country’s basket. Own foreign real estate. Establish a foreign bank account. Hold a portion of your investment portfolio in foreign currencies or foreign equities.
The truth is that these days the best investment opportunities are in emerging countries anyway, so the sooner you can offshore a portion of your investment portfolio the better.
Take back control of your investments
The super rich maintain obsessive control over their investments. Us retail investors on the other hand, have become lazy shits – ceding control of our investments to an utterly corrupt Wall Street institution that couldn’t care less about our financial security.
If you have a 401K or IRA, the best way to take back control is to convert your retirement account into a self-directed IRA that gives you “checkbook control” by employing a limited liability company (LLC) IRA structure that is directly managed by you, the account owner.
With a self-directed IRA you’re no longer limited to the crappy financial products peddled and managed by Wall Street but can invest in real estate, foreign equities, joint ventures, franchises, partnerships, small businesses, private equity, even tax liens.
Self-directed IRA’s are also a perfectly legal way to diversify internationally in a way that makes it more difficult for the government to get its hands on your retirement funds.
And if you think the U.S. government isn’t salivating over the gargantuan store of private wealth in retirement accounts, think again.
As foreign investment guru Terry Coxon often points out, since 2008 eight countries including France, Argentina, Poland, Ireland and Hungary have raided their citizens’ retirement plans and there’s no reason why it couldn’t happen in the U.S.
In fact, just last month the U.S. Treasury began raiding federal retiree programs to keep the government funded after the U.S. hit its $14.3 trillion debt ceiling.
Learn about money
Have you ever wondered why the super rich understand money and finance and you don’t know diddly? It’s because our entire education system was consciously designed from the outset to keep you in the dark on financial matters.
Consider this from Robert Kiyosaki, author of Conspiracy of the Rich, about the establishment of the General Education Board, a philanthropy started by John D Rockefeller in 1903 to establish public education throughout the south:
“It seems this was done to ensure a steady supply of employees who were always financially in need of money, a job, and job security. There is evidence that Rockefeller was influenced by the Prussian System of Education, a system designed to produce good employees and good soldiers, people who dutifully follow orders, such as ‘Do this or be fired’, or ‘Turn your money over to me for a safe keeping, I’ll invest it for you’.”
Pretty insulting isn’t it. If you don’t understand money, you’re stuck in debt serfdom.
Do you know what the Federal Reserve is and what it does? Do you know how our debt based financial system really works? Do you understand fractional reserve banking?
These are fundamentally important subjects that are never even touched on in school. A great place to start your education is online at the Ludwig von Mises Institute.
And for a great (and entertaining) tutorial on money try here…