Traditionally, people who didn’t have much knowledge about investments would buy secure government bonds and allow the magic of compound interest to take over. Slowly but surely their investment would grow over time. Today, however, the government has reduced interest rates to practically 0%. Nowadays, investors can consider themselves lucky if they find any safe investment that pays more than 1%. At these rates, investors would have to have a few million dollars in the bank in order to make a living out of their interest revenues, and then they would be highly taxed on those revenues.
Central bank screws people
In short, the government has decided to screw the small people, the mom-and-pop savers, the grandmothers with their retirement accounts, to benefit big business and government. Now businesses and government can borrow tons of money at interest rates of almost zero. What surprises me is that hardly anyone complains about this new reality. We have been domesticated to such a level that we don’t question the actions of the government. The voices of big corporations and government have overwhelmed the million little voices of the small savers.
When the banks of Canada or the bank of the U.S.A. lower the interest to such a low-level, investors have no other alternative but to put their money in high-risk investments. The most popular high-risk investment that gets pushed down our throat are stocks or mutual funds in the stock market. But how are investors who have never seen a financial report supposed to decide where to allocate their hard-earned money?
Financial institutions want a piece of you
So what do you do? Go to a local bank to ask for some advice? Make an appointment with a financial institution?
Unfortunately finance, for the uneducated, is a loser’s game. It seems that everyone wants a piece of you. No matter what you do, you will be saddled with commissions and service fees. Your money will have to overcome a big hurdle just to break even. Savers could lose as much as 50% of their capital even if they are placed into conservative investments; in fact, in the stock market, there is not such a thing as a conservative investment.
Here is how they take control of your money
If you do some research you’ll notice that most financial advisors make their money from commissions. That means that their main objective is to get you to do a transaction, any transaction, it doesn’t matter which. They’ll get paid for the number of transactions and the number of funds under management. They never get paid for the accuracy of their advice. We’ve all seen the television shows in which all the experts scream frantically; “buy”, ”hold.” But you will never hear them say “sell.” It’s as if that word doesn’t exist. Another interesting thing is that those experts never come back the following month to admit they were wrong. Of course, everyone is getting paid a commission for creating those additional transactions.
Other conflicts of interest
Here are some of the conflicts of interest that you have to face when you see a financial advisor:
Credit cards Have you ever been pitched to get the latest credit card? Even if you already have more than one? Financial experts get nice commissions from pushing yet one more credit card.
Front-end mutual funds The expert gets a nice upfront commission for just getting you on board for the latest mutual fund. Those commissions come out of your pocket. After they get the commission, they couldn’t care less about what happens to your money.
Mortgage or line of credit insurance They will push hard to sell you this product. The last time I bought a property this insurance was pushed on me four times during our transaction. If you decide you need insurance, make sure that the beneficiary is your family and not the bank
Conflict of interest in other ways. I have seen this often. The expert advises you to borrow money from the bank to invest in the bank’s investment product. You’re not guaranteed to make a profit from your investment, but the interest you’ll have to pay on that loan is very real.
I just want to make you aware
Unfortunately, at this moment, I just want to make you aware of the many problems you are facing. I don’t have a solution to propose in this article. I will propose alternative investments in future blogs. For now, I’d like you to be skeptical of everything and everyone. Always ask yourself, “How is this person screwing me? How are they getting paid?” It’s not a healthy way to live, but this is the world we live in. If we cannot change it, we might as well be aware of it.