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Active Management brokers are Sharks who want you to believe that they have a secret formula or computer program that can pick stocks that will return more than the stock market averages. If you hear any financial professional say: “Don’t you want your investments return more than the stock market averages” or “I can help you do better than the averages,” GET OUT OF THAT OFFICE! While they always say they don’t know the future, their sales pitches subtly reflect that they can pick the winning stocks ahead of time which will outperform the broad indexes. This is categorically false and a loser’s game. Nobody knows ahead of time which individual stock or part (sector) of the stock market will do better than its averages.
The Repellent is simple. But first, the average stock market returns for the domestic stock market is about 9.5% annually since 1928. What the heck is the matter with 9.5%? That’s a reasonable return that will keep you and your family ahead of the inflation rate and keep pace with the standard of living.
Applying the Repellent: Invest in the broadest most diversified low-cost indexes and “stay the course.” Many books by Jack Bogle, and numerous other authors too many to mention, have been written with convincing data that the extreme costs of active management alone drag down the returns. Indexes do not employ an expensive manager. But most of all investors control costs are broadly diversified and think long term. Fiduciary financial advisors understand the philosophy of the passive strategy, can help you construct a diversified portfolio that reflects your risk tolerance, and will help you stay the course forever.
I have practiced what I say here for years. Here is my repellent and hopefully a model for you. Below is a pie diagram of my diversified indexed and low-cost portfolio. I have not changed it much for over a decade since I retired. This portfolio returned an annual average of 5.9% during these last ten years. I am satisfied!
Steve’s Late Bloomer Wealth BIO
Stephen A. Schullo, Ph.D. (UCLA ’96) taught in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension teaching educational technology to student teachers. Steve wrote investment articles for the United Teacher-Los Angeles (UTLA) union newspaper for 13 years. He has been featured and quoted in many mainstream media articles about 403(b) plans, including the Los Angeles Times, NY Times, and U.S. News and World Report. He co-founded an investor self-help group 403bAware for teacher colleagues and wrote 7,500 posts in three investment forums since 1997. He testified at California State legislative hearings and honored with the “Unsung Hero” award by his teacher’s union for his retirement planning advocacy.
For the last 14 years, he serves as a volunteer on LAUSD’s Investment Advisory Committee as a “Member-at-Large” and former co-chair. The committee contains collective bargaining reps from the unions and monitors the district’s tax-deferred retirement plans, 457b/403b, of 55,000 former and current LAUSD employees, worth $2.8 billion in total assets.
He started this blog in 2012 to help all PreK-12 public school educators nationwide, especially his Los Angeles Unified School District colleagues. He belongs to a small national group of 403(b) advocates (mostly teachers) who want to bring closer attention to the 403(b). During the last 25 years, 38 newspaper articles have been published and each one says the same thing, TSAs (Tax Sheltered Annuities) are terrible 403(b) plans and the salesperson gets the benefit from lucrative commissions and high costs. Nobody in educational leadership reads these articles NOR talk about the proper place for annuity products publically. We come together at 403bwise.com and 403bwise Facebook page https://www.facebook.com/groups/349968819000560/ Come on over if you want to join us so we can help our colleagues avoid these self-conflicted and high-cost Tax-sheltered Annuities (TSAs).
Steve is the author of two books, Late Bloomer Millionaires and Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN!, a story of how a handful of LAUSD educators struggled for years to improve the 403(b) to no avail. But we never quit! We were instrumental in LAUSD’s implementation of the new 457(b) plan and earned a very rare, but very precious “Plan Design” award.
For a copy of both books, email Steve at steve.schullo@latebloomerwealth.com and he will happily email you both books, FREE with no obligation except to read them and get informed, in a pdf file format.