One More Reason Why The American Is Dying

One More Reason The American Dream Is Dying

         by: Brendan Magee


As evidenced by a recent Fox News Poll, 88% of U.S. citizens believe that a secure retirement is a major part of the the American Dream. I think we would all like to believe that after a lifetime of hard work that we have the right to sit back and enjoy our golden years in relative comfort and security. 

The problem is that, routinely, investors are being talked into decisions and behaviors that are in complete conflict with financial security. I saw an article in Yahoo finance that does just that and thought I would point out the flaws, but at the same time show you how investors can easily get seduced into following this misguided advice. 

The article entitled "My 7 Must-Own Stocks to Build Up Your Retirement," does what a lot of investment articles and broadcasts do in that they give the illusion that the advice is prudent when in fact it turns an investor into an unsuspecting gambler and speculator. 

So let's start off with the "7 Must-Own Stocks." They are as follows U.P.S., Boeing,Visa, AbbVie, Jason Hall, Colgate Palmolive, and Westlake Chemicals. First and foremost, the article is posted on Yahoo Finance which tends to give the article a boost in credibility. Secondly, the article lists a few companies we are all familiar with. We see the U.P.S. trucks all the time as well as their commercials. We probably all brush our teeth with Colgate or use their mouth wash. With our level of trust going up, we tend to lower our guards and give the article more credit than it deserves. 

  The first question to be asked is, "How does the author, Lawrence Meyers, of Investor Place know what is going to happen in the future with any of these companies?" He goes into detail about why believes their stocks are good investments based on  information he has in hand, but what does any of that information have to do with what will happen in the future? The truth is  only unknowable and unpredictable information and how people around the world react to it is going to move the market. What do you think your odds are there?

What ever information he has will have nothing to do with what happens to these companies in the future, good or bad. So the investor who takes him up on his advice believes they are engaged in investing when in fact they are speculating and gambling with money intended for retirement, not the blackjack table. 

Secondly, one of the most critical components of successful long-term investing is diversification. It protects you from unforeseen future developments like 9/11, or a 2008 stock market crash. Ideally, by having your money spread out among multiple asset classes you are protected against the possibility of one asset class tanking. You also don't miss out on an asset class taking off and you missing the boom.

With this article's advice all the money invested in these companies is all in U.S. Stocks. Remember the 38 percent drop in U.S. Large Company Stocks in 2008? So not only would your money be invested in one country, it would be even less diversified by owning individual stocks. Unknowingly, the investor following this articles advice is taking way more risk than they are aware of without an increased expectation in returns. 

So the article seduces the investor into becoming a speculator and a gambler, and we all know the long-term expected profit of gambling and speculation. Then gets the investor to take on massive amounts of risk without any increase in the long-term expected rate of return. That is not a recipe for a secure retirement. It's recipe for working longer, retiring with far few resources to afford the kind of retirement you were hoping to live,  or not being able to retire at all. In either case, that is not what most people are looking forward to in retirement.

To protect themselves from this kind of advice, investors need to start asking themselves better questions. Questions like: How does the market really work? How does the market produce the returns it is generating? How do you spot the warning signs that someone is trying to talk you into gambling and speculating with your money rather than prudently investing it? Answering those two questions would put the investor in a far better position as far as knowing what should be done and not be done with their money? 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments e-mail brendan@coachgee.com or call 610-446-4322