Baby Boomers – You Are Like Lambs to the Slaughter

The more I see in the press the more I realise that Baby Boomers are like lambs to the slaughter.

When times are good you are ripped off by bonus payments to fat cat executives and financial salesmen.

When times are bad you are ripped off by more fees and charges, often hidden designed to maintain the wealth managers living standards.

The financial system is stacked in favour of financial manipulation to the benefit of wealth mangers and the government.

Why would any one in their right mind give all their retirement money to one organisation to invest for them for the next 40 years and ask no questions.

Who does this?

Well almost everyone saving for their retirement and that probably includes you.

Under what pretext is this even consider a rational thing to do. I’ll talk about that in more detail in another post.

40 years is an awful long time. Several business and stock market cycles can occur in that time. Using the Buy and Hold philosophy you let them hold onto your money regardless of how well they perform.

This allows people like Bernie Madoff to make off with your money and spend it over many years before you find out it is all gone.

Wealth Managers like most business are chasing growth. They want to be the biggest fund and have the most clients. Most will do whatever it takes to do that. Many can  take your money from you in more subtle ways that are “legal” even though they may not be moral or ethical.

Every year they have to find new ways to make money from their funds and increase their profitability especially if they are a listed company. It can often include adding “small” charges to your fund that might be hidden from you because they are taken out before the unit price is posted.

For instance it might include a $45 charge to have a third party send you your quarterly reports. So rather than them doing it in house and paying that cost out of their own income they are able to recoup the cost by making it an outside charge . That outside charge is then charged to your account not theirs. An instant increase in their profit and you are none-the-wiser.

You may think you are paying fees of 1-2% but if you take into account all the charges made against your account before the unit price is calculated you are likely to be paying far more.

What makes things worse is you are paying the same percentage for them to manage your risk based assets like equity funds vs. your safe assets like fixed interest or cash funds.

Why do you let them do this to you?

Right now you have lost too much money in your equity funds to cash them out. But maybe 40% or more of your money is in fixed interest or cash and should not have “lost” anything like the amounts the equity funds have lost.

In fact fund managers use these investment to “average” the reported losses on the equity funds and give you a false sense of security. Stock markets are down 40-50% but your retirement fund has only lost 20%. Give me a break please.

The equity funds are the engine room of returns for your retirement fund if they are down 40-50% you are in big trouble.

Talk to your financial planner and get them to give you a complete breakdown of your retirement funds by asset allocation. If those safe investments have less than say 10% losses consider redeeming that money and placing it in a government guaranteed bank deposit.

Don’t panic and cash out equity funds that have lost 40-50% of their value unless you won’t have enough cash. Even then only do what you need.

Keep it simple and be as close to that money as you can be. Put it where you can draw it out at any time. You may need it to live on in the coming months.

If you can stop your retirement contributions going to your fund manager until further notice do so. Set up a complying retirement fund yourself and place that money into a bank deposit somewhere too and under your control.

Don’t worry about the poor returns or inflation right now. This is cash to live on. Try and ensure you have cash fro at least 1-2 years.

Remember if you keep giving it to your fund manager and it goes into an equity fund they are forced to be fully invested in the stock market most of the time. Right now you may as well flush that money down the toilet and save yourself their fees.

Why would you pay someone 1-2% in fees plus any hidden charges just to have them invest that money in the stock market because they have to according to their prospectus? It makes no sense to me.

No one knows where the markets are going or what will happen to the economy. The rule must be if you do not know what is going on you must stand aside. Government guaranteed Cash in a bank is still the best option for most Baby Boomers.

Protecting yourself from the downside risk right now is far more important that the fear of missing out on a flimsy possibility of a stock market bounce.

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