The sad truth is that for all the scandals, rip-offs and plain poor and conflicted advice, financial planners associated with banks will continue to receive payments for directing customers towards the banks' own products.
Under such a remuneration structure, it is simply NOT possible for such planners to provide financial product advice that is in YOUR best interests.
But never fear, help is at hand, courtesy of your independent, conflict-free friends at The Motley Fool.
Read on for the product I think is the best bet for most stock market investors.
Read on to find out how our young children could already be on the path to being worth a million dollars.
And read on to find my top four wealth creation tips. You'll be surprised at their simplicity.
Given the big banks dominate the wealth management sector and 80% of the financial planning industry is owned by the major product providers, the message from the government and the industry itself is clear…
- YOU need to take control of YOUR own money.
- YOU need to choose which financial products and services best suit YOUR own needs.
The Motley Fool is here to help — licensed, unconflicted and independent.
I'll let you in to a little secret….
You WON'T hear this general financial product advice from most financial planners, especially those associated with the banks and product providers.
For most people, when investing in the stock market, your best best is a low-cost index tracking fund.
Last year, my wife and I set up a Vanguard Index International Shares Fund for each of our three young children.
For each child, the initial investment was a relatively chunky $5,000. Luckily they had inherited some money from a grandparent, and we topped up the rest.
The good news is after the initial investment, additional BPAY investments can be made for as little as $100.
My top four wealth creation tips
The four keys to building long-term wealth are…
1) Invest in the stock market.
2) Start early.
3) Invest regularly over the long-term.
4) Keep costs to a minimum.
Our kids are starting early. They will be investing regularly — we're putting $200 into their fund every single month. And Vanguard are the leaders in low cost index tracking funds.
I chose the Vanguard International Fund because I wanted exposure outside Australia, particularly given our S&P/ASX 200 Index is concentrated on the big four banks, BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Telstra Corporation Ltd (ASX: TLS) and the two big supermarkets.
At this point, I should emphasise neither myself or The Motley Fool Australia have any commercial relationship with Vanguard. We don't take advertising. We don't accept or receive commissions or any remuneration from any financial services company, including Vanguard. We are conflict-free and independent.
Back to the kids…
Using the MoneySmart compound interest calculator, starting with $5,000 and investing $200 per month, at an average annual compounded return of 8% per annum, after 30 years our children's funds would be worth over $322,000, before costs.
Not a bad start in life, huh?
At 9% per annum and $300 monthly contributions, the fund would grow to over $550,000. At 10% per annum and $500 per month, the fund grows to over$1 million.
Through the passage of time, regular investing, and the wonders of compound returns, miracles can and do happen.
I realise many of the readers of this email don't have quite as much time on their side. You may be nearing retirement, or indeed already retired. The harsh reality is you may not have 30 years left in the tank.
But you might have kids of your own.
You might have grandchildren of your own.
What better gift than to…
1) Teach them about investing, especially about the long-term wealth effects of investing in the stock market, and;
2) Set up a low-cost index tracking fund for them. Get them started in the stock market at an early age, and encourage them to be investors for life.
The former is exactly what we do here at The Motley Fool, in this free Motley Fool Take Stock email, and in our subscription-only Motley Fool Share Advisor stock picking service.
Regular Motley Fool readers will know we usually write about individual stocks rather than index-tracking funds, because we think that by buying and holding a selection of high quality stocks, you can out-perform the returns of the market, and therefore an index tracking fund.
It's not easy, mind you.
Standard & Poor's Index Versus Active (SPIVA) most recent report found that the S&P/ASX200 Accumulation Index outperformed over 60% of active Australian equity general funds over the five years ended June 30, 2013.
Put simply, the odds of you — or the stock pickers at many of those expensively managed funds — beating the market, are stacked against you.
Still, we like a challenge here at The Motley Fool. You've got to be in it to win it.
So far so good for Motley Fool Share Advisor — our stock picks are beating the market.
As of Friday July 11 2014 our ASX scorecard (including every stock pick we've made — the winners, the losers, the stocks we've sold — it's all there on our members-only Motley Fool Share Advisor site) is currently showing the market a clean pair of heels, with an average gain of 39.4%, compared to the All Ords gain of 19.8%, both including dividends.
Our biggest ASX winner is up almost 200%.
Our biggest US-quoted winner is up a whopping 758%.
As somewhat of an aside, with returns like 758% on offer, it pays to invest internationally. You can do it though local brokers including Commsec, cheaper through OptionsXpress Australia. I have an account with the latter. Again neither myself or The Motley Fool has any commercial relationship with either company.
If you fancy getting started, our US-quoted stock picks are emailed monthly, exclusively to Motley Fool Share Advisor subscribers tomorrow afternoon.
It's a company you'll already know well. What you may NOT know is, despite its dominant brand, we think the stock has plenty of room to run.
Match the market, and beat it — both at the same time
Another investing option is to do both — invest regularly in an index tracking fund, and ALSO invest regularly in individual stocks.
Stock picking is an intellectual and emotional challenge.
Done well, it can lead to great wealth, over the long-term.
Done badly, usually following a hot tip on a highly speculative mining stock, it can lead to the poor farm.
I dread to think of the thousands and thousands of dollars smart people have dusted on popular stocks like St. Barbara Limited (ASX: SBM), Central Petroleum Limited (ASX: CTP) and Dart Energy Ltd (ASX: DTE). Worse, people who've lost money, have given up on the stock market forever, costing them hundreds of thousands of dollars in missed opportunity.
Our mission at The Motley Fool is simple — to help the world invest better.
We make our money when people subscribe to our stock-picking newsletters, including our market-beating Motley Fool Share Advisor service. We're incentivised and motivated to pick winning stocks for our subscribers, otherwise they won't renew with us. Believe me — it's a tough old business if people don't renew their subscriptions.
Although thousands of your fellow Motley Fool readers have already signed up for Motley Fool Share Advisor, we realise our subscription services are not suitable for everybody.
- You may want to pick stocks yourself.
- You may be happily invested in a fund (hopefully one that is out-performing the market).
- You may be scared of a market crash, scared of stock market volatility, and therefore happy leaving your money in a term deposit account, earning 3% per annum.
- You may be paying off your mortgage, or heaven-forbid, your credit card debt.
- Or you may prefer to subscribe to a service that swings for the fences, looking for next Fortescue Metals Group (FMG) or Sirius Resources N.L. (ASX: SIR). Good luck with that one.
Whichever pathway you take, whether you are with The Motley Fool for a day or a lifetime, whether you read these free emails or indeed do subscribe to our stock-picking services, we hope we can help YOU invest better.
We'll have fulfilled our mission, and you'll have created significant wealth.
It's something you won't get from your conflicted financial planner. Until next time, as ever, I wish you happy and profitable investing.
