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Paul B. Farrell Archives | Email alerts
Jan. 3, 2012, 12:01 a.m. EST
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) "” "While millions of Americans saw their incomes decrease, their job opportunities dissipate and their home values drop as the economy dipped," reports ABC News, "the 535 men and women they elected to represent them in the U.S. Congress were not only shielded from the economic downturn but gained during it."
Yes folks, more evidence of the growing class warfare between the Super Rich 1% and the other 99% of Americans: "The average American's net worth has dropped 8% during the past six years, while members of Congress got, on average, 15% richer, according to a New York Times analysis of financial disclosure. The median net worth of members of Congress is about $913,000, compared with about $100,000 for the country at large."
Why? Simple, Congress trades on "insider information." Seriously, Integrity Research Associates tracked stock trading by members of Congress for years and while the vast majority of America's 99% have lost money on an inflation-adjusted basis since 2001, our elected officials are enjoying a perennial bull market "using their official positions for private profit" generating "abnormal returns."
How bad is it? House Representatives beat the market by 6 percentage points. But Senators are beating the market by 12 percentage points, every year, prompting one commentator to call it the US Senate Insiders Trading Hedge Fund. Yes, they love trading: In a Wall Street Journal article we learned that "some members of Congress aren't good at it." Like Senator Bob Corker who "earned more than $1 million on short-term trades in a real estate investment trust, but would have doubled that total if he simply bought and held." Yes, even richer on buy"? and hold.
Yes, they are stealing from us. And it's worse than Bernie Madoff's schemes because they're violating a position of trust. Another sign of the decline of moral character in America.
OK, so our Lazy Portfolios can't beat the market by 12% annually, like the perennial bull run of the U.S. Senators Insider Trading Hedge Fund. But on a long-term buy-and-hold basis, for five years and for 10 years, the Lazy Portfolios are in fact beating the S&P benchmark by two or three percentage points.
That's great for the vast majority of Americans, because all eight Lazy Portfolios involve no active trading and have had few changes in asset allocations the past decade. They really are perfect for passive investors.
Lazy Portfolios work because they're based on the Noble prize-winning Modern Portfolio Theory commonly used by professional portfolio managers. And they're very simple: Well-diversified portfolios of just three to 11 no-load, low-cost index funds. Here's an overview of the short-term and long-term performance of all eight:
See our Lazy Portfolio Center.
But wait just one minute, Paul: What about the short-term? And isn't buy and hold dead? That what Wall Street bankers, brokers and cable pundits are all telling us. After all, the S&P 500 just broke even this past year, has been a money-loser for a decade.
So the word on the Street is simple: They want you to forget buy and hold. Financial insiders want investors to get in the action and trade, Trade, TRADE if they want to make "real money" today! And why not, Wall Street insiders make lots more money on transaction fees and commissions once you switch passive investing to active trading and start churning your portfolio.
Warning, don't listen to Wall Street insiders, cable pundits and your brokers. They're back thinking like they did in the late "?90s dot-com insanity. They hate buy and hold. They make money when you trade, skimming about a third of your returns off the top. Face it, when you place bets at their casino, the house always win.
Bottom-line: Buy and hold really is the best strategy for the vast majority of Main Street American investors. Studies make clear: "The more you trade the less you earn." Why? All the transaction costs, management fees, commissions and taxes reduce your returns below even the "new normal," while making Wall Street insiders richer.
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Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The... Expand
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology. Collapse
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