Fake Math and Mutual Funds

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[The following is a partial transcript of this episode of The Scott Alan Turner Show. Listen to the full episode to hear this story, listener questions, money hacks, and inspiring stories of people that are changing their financial lives. Subscribe to the free podcast on iTunes or Google Play]

In This Episode

  • Millionaire Story – Beth shares her path to financial independence at age 40
  • Health alert – Kale rejoins the ‘Dirty Dozen’ list as one of the most contaminated with pesticides.
  • Red Alert Warning – more phone scams to be aware of.

Listener questions:

  • Explain the pro-rata rule when doing a backdoor Roth IRA (Marjorie)
  • What do you think of the new Betterment Advice service (Gandolf)
  • I keep getting in and out of debt (Marjorie)
  • Where is a good place to put my tax money from my side hustle (Becca, Indianapolis)
  • What can I do about my landlord harassing me (Patricia)

Resources/links:

Today I’m going to show you how numbers don’t lie. People lie and manipulate numbers, but numbers don’t lie.

I got some comments recently about some investments. And I’ve have been reviewing some fake math on YouTube. Just like in Star Wars – this is not the investment you’re looking for. The Fancy Nancy definition is a ticker symbol. It’s kinda like the initials of an investment.

The Good Growth Stock Fund of America is the name. It’s one of those good growth stock mutual funds that’s been around since 1973. You’ve probably heard about those.

People who are uneducated, like I used to be. Greedy, like I used to be. Fall victim to bad advice. Like I used to. They look at one thing when it comes to an investment.

The return.

  • When people pick stuff in their 401(k). They look at the returns only.
  • When people hear this garbage on the radio and TV and in magazines. They only hear the returns.
  • When smiley salespeople show good, hard working Americans the glossy one-page brochure, they only point out the returns.

And I’m looking at this and going, that’s Wall Street speaking. Jack Bogle the founder of Vanguard fought this nonsense for years. He was a rock star. But even he couldn’t beat the lobbyists. Much like the lobbyists are trying to weaken the fiduciary standard right now. Their money comes first, not yours. Not mine.

What is most important is how much money you’ll have, at whatever your risk tolerance is.

A year and half ago on The Scott Alan Turner Show I told you this was coming. I believe it was Jason Zweig of the Wall Street Journal who first pointed it out. Ten years ago the stock market sank. And the market crash is now off the books. It won’t show up in these 10-year returns anymore. Which is great for all these mutual fund sales people. Because too many people look at returns only when making investing choices.

That’s why, in a span of just two short months. A good growth stock mutual fund can go from having a 13% ten-year average, to a 17% ten-year average. Practically overnight in the history of investing. And all that changed was the date.

And again, what do people look at when picking investments? The returns. Nothing more.

A percent return, is NOT what ends up in your bank. That’s fake math. But holy cow, it’s really money you miss out on.

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Here’s a simple example to keep it simple. Scott’s Brilliant Investing Fund. Started in 2009. He’s wicked smart, eh. He makes 100% in year one. And nothing for the next nine years. He goes on a long vacation.

The 10-year average is 10%.

Consider all the suckers that invested starting when Scott goes on vacation. How much do they make?

0%. How much money? $0.

It doesn’t matter how good I was before I went on vacation. Everyone who invested after I left got hosed.

But wait! Didn’t they get a 10% average? YES! They did. In the sales brochure. Not in their bank account. Try bragging about that to their friends. “You know Bob, my investments are averaging 10% a year. But my bank account is averaging $0.”

So impressive!

I share that because that good growth stock mutual fund is often talked about. The one from 1972. Same thing. Had an amazing first few years in 1972–1975. All these years later, those early returns skew what ends up in your bank account. Oh you didn’t buy that investment in 1972?

What investments did 40 years ago doesn’t matter anymore than the salad you ate on January 1st five years ago to lose weight. That salad went down the toilet a long time ago. Just like where people’s money is going. It’s fake math.

Every single person who uses the excuse ‘I’m not good at math’ is really saying ‘I’m too lazy to care about my money’. I’ll bury my head in the sand. I don’t want or need an extra $10,000, $100,000, $250,000 in my investments.

The numbers don’t lie. How they get presented is the lie. I love math. I’m a math nerd. I’m not selling you anything. I’m not getting paid millions of dollars. I’ve been researching this stuff and crunching numbers and spreadsheets for years to dig deep into this stuff.

And you can point out to your friends – I invented the phrase Fake Math. For precisely this reason.

We’re investing for decades. Not 1-year. Not 5-years. Not 10-years.

What matters more than anything is your asset allocation – stocks, bonds, domestic, international. An investing strategy that works in good times AND bad. Think about the person who had 100% stock investments in four different stock funds in 2009. They had visions of retiring. The ended up working another 3–5 years or longer to make back all those losses. Because they chased returns.

That’s not what I want for you.

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