Mark D. Goldstein, CFP®
Certified Financial Planner
SAFE-Money Alliance

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Las Cruces, NM 88005
(575) 556-2472

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El Paso, TX 79912
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Rolling Meadows, IL 60008
(877) 442-0698 Toll-Free

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Friends, if you ask me, most financial advisors don’t even realize the damage they’re doing.

Sure, you've all read about those sleazy creeps that knowingly mislead and defraud their clients. But most advisors are merely cogs in a very powerful marketing machine.

In much the same way that the financial industry has convinced the average investor that it’s working in their best interest, the industry has also done an effective job of convincing their salespeople that they’re actually doing their clients a service by selling them their products.

Now, I know it may shock you, but most financial advisors and planners are not the sophisticated money managers or highly experienced investment professionals you would assume. A lot of those guys enter the business right out of college with absolutely no financial experience whatsoever. The financial institutions that hire them, not the universities, are the ones who ultimately train them (mainly on how to sell products, not how to analyze them).

Bottom Line: Making more money for you, the client, is NOT the highest priority of the financial industry. Their number one objective is to create profits for their shareholders, which involves the manufacturing of a never-ending supply of financial products that can be sold to their clients.

Many of these companies impose sales targets and quotas on their salespeople, which means that products must be sold to someone and often without regard to the client’s best interest. And, by the way, I’m not referring to some type of “boiler room” operation. This kind of stuff goes on among some of the most respected names in the financial industry.

Okay, I admit that sales quotas are not unusual in many businesses, since it helps drive revenue and profits for the company. But, when it comes to YOUR money… I believe it’s critically important that you understand what goes on behind the scenes.

For example, here are a couple of common tricks they play with your investment funds…


A mutual fund with a horrible track record will obviously have a difficult time attracting new investors, right? So, imagine a mutual fund company that manages a fund with a terrible 10-year record. We’ll call it the "Total Loser Equity Fund" and pretend that it’s averaged a MINUS 10% per year for the past 10 years. It’s an embarrassment to the company and an ugly wart on their product shelf.

So, what might the mutual fund company do?

Hmm, let's see. They could pull a very creative maneuver that makes the Total Loser Equity Fund completely disappear (along with their totally awful 10-year track record) by rolling it into another fund in their lineup, like the "Total Winner Equity Fund" and voila! The loser fund and it’s lousy track record disappears into thin air.

Some mutual fund companies love to play this game because eliminating the bad performers covers up their mistakes and allows them to advertise that all their funds are top performers and we the public, never learn the truth!


Most investors don’t know the difference between "average" rate-of-return and "actual" rate-of-return and end up getting suckered into bad investments through misleading advertised performance numbers.

Their advisor never explained that what your investment is averaging isn’t necessarily the same as what you’ve

Example: Joe invests $100,000 in a new mutual fund and in just one year his investment doubles to $200,000. Joe is ecstatic because his rate-of-return for the year is 100% (a $100,000 gain).

Another year goes by and the investment drops by 50%. Joe’s annual rate-of-return for the second year is MINUS 50%. His $200,000 is back down to the original $100,000, a 50% loss. Joe is suddenly feeling a bit nauseous and calls his advisor.

Q: Joe’s advisor tells him that his average annual rate-of-return is a positive 25%. Is he lying?

A: His advisor is technically correct. Joe’s “average” annual rate-of-return (“arithmetic mean”) is 25%. Average annual rate-of-return is calculated by taking the rate-of-return in year one (+100%) and adding it to the rate-of-return in year two (-50%), and dividing the sum (+50%) by the total number of years (2). The answer is a 25% average return.

Of course, Joe’s “actual” rate-of-return is ZERO%. Whether his advisor is being honest or not, I’ll leave that up to you to decide.

But, the fact of the matter is that mutual fund companies report the “arithmetic mean” average rates-of-return on the investments they manage. Many investment firms also calculate your rate-of-return the same way and report your “average” rate-of-return to you.

As you can easily see, average annual rates-of-return can be very deceptive. So, when you’re analyzing rates-of-return on any investment, look deeper than just the average annual rate-of-return... and don't YOU get fooled by this distortion.

What really matters is your ACTUAL rate-of-return!


Next week: “How to protect and SAFELY grow your nest-egg in order to retire carefree and comfortably... with an inflation-protected income that can never be outlived!”