Wall Street and High Taxes

The media gets it wrong as usual.

Those on Wall Street who make $10 million a year are jealous of those who make $20 million; those who make $50 million a year a jealous of those who make $80 million. It’s a matter of psychology.

Taxes mean less to them. In fact, a majority are registered Democrats who could care less for high taxes; they profit from big government. Its largess and their ability to influence such big government attracts the Wall Street insiders.

True business people, especially those on Main Street, fear taxes for what they do to smaller and medium size business they are in.

Never confuse true business people from stock pickers. ( See the Earl J Weinreb NewsHole® comments.)

Supply/Demand of Securities

Never buy securities on the basis of public recommendations. Thousands, maybe hundreds of thousands, are receiving the message at the same time or may have gotten it earlier than you. That same advice.

Remember the effect of everyone acting at once. And the law of supply and demand. That law will be working against you when everyone acts on the same news at the same time. (See the Earl J Weinreb NewsHole® comments.)

Financial Advertising

There always is a conflict of interest when an ad or public relations announcement gives financial advice. Especially with the repetition of ads and announcements.

All you get is one side of the story, one financial idea or strategy’s slant. But there is always a negative factor in every financial idea or strategy, Maybe more than one. Obviously, they’re never mentioned.

And media financial advertising provides so much “education’ for the average investor. (See the Earl J Weinreb NewsHole® comments.)

Mutual Fund Expense Totals

The fundamental differences among mutual funds, aside from investment class and specialty, is cost. The lower the cost of operation, the better the fundamental choice. Relative cost makes a lot of difference in accumulated investment value over the years.

The average expense ratio for all mutual funds is about 1.3% per year. Many charge more than 2% This covers only fixed costs, such as salaries, marketing and overhead.

There are variable costs such as brokerage commissions and trading spreads. While funds pay lower commission rates than you, the more the fund trades, the more it spends on brokerage. And the less you earn.

Those expenses are not included in the Expense Ratio or are they mentioned in the prospectus, They are in the fund’s Statement of Additional Information,

In 2007, an analysis by researchers at Virginia Tech, the University of Virginia, and Boston College, in a sample of 1,706 U.S. equity funds from 1995 to 2005, found the average fund had annual trading expenses of 1.44% per year Added to the 1.32% average expense ratio for funds, the average mutual fund expense ratio becomes a total cost of 2.76% per year. (See the Earl J Weinreb NewsHole® comments.)

Misleading Financial Headlines

Financial headlines can mislead. Reasons they give why markets go up or down are often pure fiction. There may be many causes of stock market moves but the financial headline writers manage to have set answers.

It is almost impossible to know after a trading day’s closing, the moods and sentiments that drove that day’s market, nor the supply and demand of securities over the global markets that would have had an impact.

Short of a major calamity or importantly market-impacting event, the media does not know. But is ready with answers, as if a market crystal ball has somehow telegraphed some secrets to them. (See the Earl J Weinreb NewsHole® comments.)

Hedge Funds and Dodd-Frank

Larger hedge funds must now register with the Securities and Exchange Commission.

Despite popular impressions, hedge funds are a stabilizing factor in market trading, but a mostly inept media never gets this point across. Thus, politicians are able to pin blame for market problems on the wrong parties. Besides, the SEC has had a rather poor record in checking out fraud in the past.

Hedge funds tend to work off the extremes of the market. This keeps prices in line. Dodd-Frank however, did nothing but exaggerate the too-big-to-fail problem. (See the Earl J Weinreb NewsHole® comments.)

Financial Adviser Cost

Here is Christmas gift information the media overlooks all the time.

It has to do with how your financial advisers are being compensated. There may be a big difference between what they earn and what you pay them.

I am not only referring to the fact that they may be getting referral fees for recommending you as a client. That would be a conflict of interest harmful to your interests.

No, I am calculating actual cost to you.

You will pay the advisor’s fee, on the management of your assets, It can be1% to 3%, but generally 1½%. That’s $1,500 for every $100,000 they manage.

(Note the asset-management fee may not be the only cost. You pay other charges, which include mutual fund and exchange-traded fund fees for management. And if you use a hedge fund, you may also pay about 20% or so of fund earnings.)

The problem is that 1 ½% management costs add up to a considerable chunk of your annual returns. After all, you’re lucky if you earn $5,000, or 5% for each $100,000. The advisory fee, in other words, is 30%.( See the Earl J Weinreb NewsHole® comments.)