Friday, July 23, 2010

The Hiatus

I am going on a vacation for the next week to the great white north.  My internet and time availability is very much in question so posts over the next week are going to vary between inconsistent and nonexistent.  I will be back in business at the start of August.

Wendy and I had a great conversation last night about banks and investing in particular.  She got her statement for her investments over the last few years and it told her that her return was 1.12% per annum.  Given the remarkable crash that occurred and the lack of a complete rebound that doesn't sound too bad but strangely the total value of her investments had actually dropped over that time.  She was initially really puzzled until I pointed out that the bank had been taking close to 2% of her total money every year in fees to maintain those investments and those fees were not noted on the statement anywhere.  She got pretty ticked off about this and I certainly can understand that; the fact that when the investments were made there was no mention of the size of the fees is pretty awful but the 'creative' bank reporting is a new high for them.

Thing is, percentages are comparisons.  The bank statements are obviously structured to present the percentage increase per annum against something and the bank wants you to think you are comparing it against that money sitting under your mattress.  Instead they are actually comparing your return against a person handing the bank 2% of their net worth every year *for no return whatsoever*.  As such the return looks like investing with them actually helped when compared to the Bank of Mattress when in fact it lost her money.

I wish these sorts of shenanigans were the exception and we could change banks to get away from it but that just isn't the case.  Investment firms/departments aren't selling investment advice since their people can't even beat the base market increases on average and they surely aren't selling a structure for building wealth.  What they sell is quite simply the illusion that you are doing good things with your money and they charge an incredible fortune for it.  The investment experts at the bank aren't able to beat the market and the investment advisers are salespeople paid to get you into an expensive fund.  Their priority is simply to do a survey with you and then regardless of the results to recommend a fund that has the bank taking the maximum percentage of your money they can get away with.  If you try to swap your money into a low cost fund the bank will give you huge amounts of resistance and warnings and red tape before finally succumbing.

The simple fact is that the investment side of banks is insanely profitable because all they do is take 2% of everyone's money every year.  Whether the funds go up or down is irrelevant to them so their focus is simply to trick you into ignoring the fees they charge and make it easy for you to buy expensive funds.  Given the modern requirement to build up wealth over your life the state of investing is a disaster for the average person and a windfall for the thieves *cough* banks.

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