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The concentration of power in the banks is at Great Depression levels. When the balance of power is tilted too far in favor of the rich, bad things start to happen. This was demonstrated in 2008 with the mortgage meltdown. The bottom line is that Wall Street has a gambling problem and nothing has changed since that bubble burst.
Why is this important to me?
I am not summarizing this to waste your time. It’s my approach to providing concise action steps that you can take right now to enhance your financial life. There is an old saying, put a frog in boiling water it will jump out but heat the water slowly and it will die in it. This is what is happening right now with the money of the United States of America. The largest wealth transfer in history is happening as we speak and has been happening since 2005. Wall Street only cares about bonuses and pay. Big companies and banks alike get paid big, even if they do bad things and do bad things. GE was hailed as one of the great American companies and the stock price is half what it was 10 years ago, yet the executive management team made a lot of money.
Where I come from, you don’t get a trophy until you win. Today the management has no stake in the companies they run. The biggest problem we face right now is that the US government borrows .43 cents for every dollar it spends on wars, defense, entitlements and other projects. If the average American did this, bankruptcy would happen in less than 2 months.
Pirates of Manhattan II focuses on target date mutual funds and the fact that banks want to start administering your 401K plans. In this summary, we’ll cover the what, why, and how of target date mutual funds and review performance to make sure you know how to protect yourself.
1. What are Target Debt Mutual Funds? – A mutual fund in the hybrid category that automatically resets the asset mix (stocks, bonds, cash equivalents) in its portfolio as per the selected time frame suitable for a particular investor. Target-date funds are similar to life-cycle funds, except that target-date funds are structured to address a date in the future, such as retirement. These instruments are very complex and may include derivatives and other instruments. The disclosure document and prospectus are like a 1,900-page health care bill – very complex.
2. Why is it important to understand TDMF? Mutual funds are generally touted and advertised as great investments by the likes of Suge Orman and other financial gurus. When you dig down and see what the wealthy invest in, the last thing on their list is mutual funds and 401k’s. Suze Orman pushes these tools like her life depended on it. Since his sponsors are large financial corporations, perhaps his financial life depends on it. The question is, does she herself invest in these devices? According to him, he only has 3% of his wealth tied up in the stock market because “I don’t care if I lose it.” How can she promote these devices if she doesn’t invest in them herself? What you’ll find is that major businesses, wealthy people, and smart investors don’t invest in mutual funds and 401K plans.
3. How does it work? Target date mutual funds aren’t perfect, but there are three drivers driving their growth. 1. TDMFs are now the default choice on most 401K plans. 2) On employment, many employers default the selected employee so that they join the scheme. 3.) Mutual funds and 401K are not guaranteed.
The media has done a great job of selling the general public on investments that are not guaranteed. Dave Ramsey pitches mutual funds saying you can get 12% per year. This is confusing because according to Dalbar actively managed mutual funds have averaged 3.8% per year over the past 20 years. You can invest in Guaranteed Annuity and Life Insurance and beat these returns by 2-3% and your returns are guaranteed. Mutual insurance companies are owned by policy holders and capitalization requirements are 1 to 1 and not 10 to 1 like banks. Some mutual funds use leverage as high as 60 to 1. If you remember the mortgage crisis in 2008 was leveraged over 40 to 1 derivatives and now the same banks want access to your cash because of fees and money making. Stream they provide.
This book is a must read and will scare you. Most of the people I chat with have basically “learned helplessness.” I hear – “I get my 401K statements and I don’t even open them.” It is a travesty and needs to change. Account protection is as important as depositing the account. Will Rogers said: “It’s my money back that I’m concerned about.” Your retirement account should be guaranteed and it should be solid. After that you can make other speculative investments but not your original nest egg. Another area the book covers is the relationship between big business, the media, the financial press, and your retirement. The mutual fund business is a trillion dollar industry and the sharks know that whether you win or lose, they make money on fees and administration.
I hope you find this brief summary useful. The key to any new idea is to incorporate it into your routine until it becomes a habit. Habits are formed in 21 days. One thing you can take away from this book is to create a guaranteed retirement plan. Do your research and be a part of that research annuity and life insurance. I am not a financial planner but I am an advocate of financial education. I can tell you that I do not own mutual funds and I do not tie my money into 401K plans. This is a road to nowhere in my opinion. I save money in guaranteed instruments like life insurance and annuities. Set aside a time on your calendar each week and get educated.
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