The Evasions, Omissions, Fabrications, Frauds, and Outright Falsehoods of Investing

There has to be something wrong with the world when a group of sweet 70 year old ladies from Beardstown, Illinois end up perpetrating one of the largest lies of old lady investment clubs in history. The Beardstown Ladies claimed to be making 23.4% returns annually from 1984 to 1993, nearly double the Dow Jones Industrial Average’s returns during the same period. This of course was because they were charging the ladies in the club membership dues to be part of the inverse funnel scheme that they were cooking up. These dues were counted as part of their “returns” and part of the exceptional 23.4% return. This method was included in the footnotes, and the bold claim is even on the cover! However once Price Waterhouse Cooper (the auditors to the Oscars) came in and looked at their books the game was up! The groups’s returns were actually were quite terrible. These old fraudster’s wise and sage advice on investing resulted in a modest 9% which underperformed the Dow 30! They would have done better in a Dow index fund instead of defrauding and falsely motivating a new generation of dumb money investors. I am sure they made a few bucks on selling 800,000 copies of the book at $20 a pop. You just need that many suckers!

look at my sweet returns on depositing MR points into my account! For $19.95 I can show you how!

Claiming a senior moment they said that it was a honest mistake, they offered to exchange their book for another book, but never gave any refunds. At this point no one cared even when the fraud was exposed. We all laughed it off, like a bunch of suckers. We rather have a cinderella story of how a bunch of old midwestern ladies could beat Wall Street, even though it was an outright fabrication. We felt warm and fuzzy inside, just for a moment, but never raising the alarm of bullshit when another hack comes along claiming the same thing. We wanted to believe that these grandmas were doing awesome and we all could also be Gordon Gekko in a zero sum game. Unfortunately, the markets are not AYSO soccer where everyone wins all the time.

This is the lie that most of these managed funds or trading houses want you to believe. You, the underdog can outperform those in the industry because, you are so special and awesome. They will gladly help you out too for a mere $25 per broker suggested trade from schwab. When you ask your broker what a good stock to buy he will guess for you for only $25! Amazing, but this will eat up your bonus when you fall for the scam 8 times.

Even if you pick you own shares you are paying $14 per buying and selling cycle. This is only 14 stocks that you buy and sell. They will get their $200 for sure, just don’t let them do it. Take the money and run, focus on TSP and your Roth IRA with Vanguard!

I promised reader Dave that I would unveil my plan on investing the $10,000 I put into the schwab account, and here it is:

  1. Use the online transfer tab to bring in $10,000 from a checking account churn
  2. Ignore all phone calls from Schwab begging to go into one of their overpriced funds
  3. Maybe consider one of the ETFs by Cambria since your heavy in USA equities with TSP
  4. Realize that $0 is cheaper than $6.95 a trade so use Robinhood instead to buy said ETF
  5. Receive $100 bonus in April for code “SchwabWelcome11”
  6. Withdrawal $9,100 and put it into another checking account for a bonus deal that has yet to be announced
  7. Ignore all phone calls from Schwab begging to go into one of their broker suggested stocks
  8. When the other $100 hits for code “REFER” move it out and buy something nice, or move it to robinhood
  9. Close the account after the one year mark.

I am not moving the money to any of schwab’s funds because their lowest price funds are SWTSX: Schwab Total Stock Market Index Fund® (0.11%) and SWPPX: Schwab® S&P 500 Index Fund (0.09%). These funds are essentially the C and S funds and the straight C fund respectively. Don’t invest in these because you already have money in them with TSP at a fraction of the cost (0.029%). The other funds are stupid expensive too, for example their life cycle fund of Schwab Target 2045 Fund SWMRX has a gross expense ratio of 0.99%! This five times more expensive than the Vanguard Target Retirement 2045 Fund (VTIVX) at 0.19%. Not too much difference in the methodology used to balance the funds as you near retirement age.

Just stick with Vanguard if you do decide on going for a managed mutual fund. Schwab has fees like the Rolls Royce of investing services, you will do just as well with your Toyota Camry (Vanguard) to get to retirement for cheap!

Meb Faber talks about home country bias in his blog. We become blind to other markets because we are so focused to our domestic economy. Even when people have money in TSP, they do the stupidest things like continue buying more Apple or Amazon even thought they are just adding to their already pretty big position in it with indexing. Remember you are already owning the entire stock market with C and S, when a market takes a turn you will not have anything outside this market to rest on.

Typical dumb money move is to listen to your aunt when she says buy more Apple even though we all own it, you are not special in your research. You need to break away from the American Market, since no diversity of investing has taken place by continually buying more American stocks. Yes this includes Tesla, you own it with the nasdaq 100 and with the S fund. So stop buying Tesla you sheep!

I don’t feel like taking any more risk because my family is getting huge and I rather reserve the $9,000 to open another checking account for the bonus or diapers, I dunno yet. The money needs to be free, and I have it ready by April which doesn’t give me a good time to invest in anything long term without taking some risk.

I looked at CDs and there are all a pitiful 0.70% for a 3 month CD. The Money market is also pitiful at 0.77% which makes these checking bonuses worth it. For example (if it is offered again) the Chase Bank Checking and Savings for $500 for another $15,000 which is 3.33% return for three months in an account. Annualized 12% return!

Again this is my strategy because of my crippling aversion to risk right now. If you do plan on investing it, keep in mind the management fees, and avoid buying funds that overlap of stuff you already own. I am happy with my $200 bonus and to get a way to dump my points. Charles Schwab hates this kind of investors, because they were hoping to get their $200 back in the form of fees and $6.95 a trade. I’m like the dude that gets the free weekend trip for the time share pitch, but didn’t sign a thing!

Good luck out there!


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