Whether a simple language blunder or insight into the psychology of the rich and powerful, Svanberg’s comments touch on a belief held by many – that in this world there are rules for the privileged and then rules for the rest of us little people, conjuring up memories of the late Leona Helmsley’s famous statement that, “only the little people pay taxes”.

Wall Street is founded on the little people premise. One manifestation is seen in the ubiquitous conversation by wealth managers about AUM or Assets Under Management. AUM is the measuring rod of their success and compensation -a topic of their urbane, cocktail-party banter. Every wealth manager or investment adviser is aware of his AUM as well as that of their friends and competitors because it indicates how much one earns.

Wealth managers trim 1% to 1.5% in fees off of “their” AUM every year. The bigger your retirement account, the more you add to your manager’s AUM and you become a “bigger person” in his eyes. If your account is under $500K, you are likely a little person. Some top managers won’t even answer you’re call if you can’t add $5 million to their AUM.

While AUM is the accepted business model, we have a huge problem with it. What value does a wealth manager add that gives him the right to extract a fixed percent every year off the spoils of your life’s work?

We deliver our advice to all for the same low cost regardless of a portfolio’s size. We treat every investor as a big person. There are no special investors who are on the inside track with access to special insights or favors.

At MarketRiders, we’ve begun measuring our success, in part, by AOM, or Assets Out of Management. We track the amount of draining fees from the AUM game that we’ve helped you escape. This week, we celebrate reaching $500 million of AOM and you — our thousands of investors that are now saving millions in fees. Here’s to no little people!

First, stock prices can be random, and it’s best to protect yourself. Don’t learn this the hard way: owning a portfolio of individual stocks that you think you “understand” is dangerous. BP has almost perfectly tracked the S&P 500 for years. Since April 26th, it has lost 50% of its value ($100 billion) due to a unpredictable event. Those who became comfortable with their stalwart, conservative bank and financial stocks (AIG, General Electric) learned about random events in 2008. Diversification means owning thousands of stocks and bonds in six or more asset classes using indexes and ETFs, not 20 stocks that you “like.”

Second, markets are mostly efficient. That’s because the smartest minds in the world are haggling over what companies are worth by trading shares all day. Buy a stock and 99% of the time, you are paying what it is worth. You aren’t getting a bargain, and you’re not going to “beat” the market.

Picture a gigantic computer, programmed with the best logic and infinite processing capacity, recalculating the value of all public companies every second of the day. On April 26 when the spill became front page news, BP dropped from $60 to $50 within days. The computer was busy digesting all the new data as daily shares traded spiked from 5 million to 156 million. By early June, as the spill worsened, the computer dropped BP below $30. Value investors estimated the spill’s damage against BP’s assets, cash flow, and litigation costs and bought from sellers who predicted bankruptcy. By June 10th, the computer was working overtime – 222 million shares were traded and BP closed near $31. But the computer was right: when a $20 billion settlement fund was announced a week later, BP’s price hardly budged.

Over a 10 – 30 year time horizon, you’re no match for the computer and neither is your financial adviser. It’ll out-think you. It’ll never get exhausted. Remember BP next time you are tempted to buy that stock you “like,” and then take that extra cash and rebalance your ETF portfolio.

Investors who have decided to enter this tournament via day trading, market timing, technical analysis or even tactical asset allocation, need to pay close attention. You are playing a game that is very difficult to win, especially if you have fewer resources, knowledge and technology than your competition. Oh, sure, you might be lucky enough to win a few early hands but the long-term outcome is fairly predictable. Such investors live with a prevailing sense of unrest knowing that they have shown up to a shotgun duel carrying a pocketknife.

Wealthy families, endowments and elite institutions practice a different investment approach. These investors are wise enough to avoid, paying fees to managers trying to “beat” the averages in public stock markets. Sure, they may invest in private equity and venture capital where they enjoy an advantage via access to the best deals and terms. But when it comes to public markets, these investors commit a large portion of their portfolio to passive indexed strategies – the MarketRiders approach. The only bet such investors are making is that the world is in fact not coming to an end any time soon and that its markets, companies and their portfolio will continue to grow over long periods of time.

This approach provides amazing freedom from having to stare at your portfolio several times a day. Unconcerned about the daily gyrations of Jim Cramer and the rest of the bobble-headed finance media, long-term and disciplined MarketRiders can go about their daily lives with peace of mind. Sure, the market is down May and your portfolio probably dropped with it, but with a retirement time-horizon that is years away, your portfolio will not only recover, but grow quite nicely.  And by rebalancing you are taking advantage of these swings.  This knowledge frees you from staring at a computer monitor and gives you time to go about the real business of living your life.  In the end, isn’t that what the money is actually for?

1.  Sign up for a MarketRiders 30 day Free Trial.  There is a “sign-up” link on the top right of www.marketriders.com.

2.  You will be asked to create your first portfolio and you’ll have 2 options:  “Build It For Me” and “Let Me Build It.”  Choose “Let Me Build It.”

3.  In Step 1 of 5, you’ll see a list of templates that you can use in a pull-down menu.  The CNBC model portfolios are listed in these templates.  Select the portfolio that you’d like to use.

4.  In Steps 2 and 3 of 5, you’ll be able to alter the asset allocations and ETFs in the CNBC portfolios.   If you don’t want to change anything in the CNBC portfolios, click “Next” at these steps and go to Step 4 of 5.

5.  In Step 4 of 5, name your portfolio and enter the amount you want to invest so MarketRiders can calculate the number of shares you need to purchase of each ETF and email you a list.

6.  Once you’ve purchased the ETFs, enter the costs into MarketRiders and you’ll receive an email notification when the actual allocations stray from the CNBC targets so you can then rebalance portfolio.  On the dashboard, you can “Change Alert Settings” to make these alerts more or less frequent.

Read more about the CNBC portfolios here:

www.cnbc.com/id/34726386

If you haven’t sold your actively managed mutual funds, then at least look at what you are paying for them. You’ll get a free customized report comparing your mutual funds to ETFs in seconds. Here is the link: Mutual Fund Fee Analyzer. Pass it along to friends and family you care about.

Once you find out how expensive your funds are, you might say: “I have good mutual fund managers. They do beat the market.” You are missing the point – it’s not the fund, it’s the portfolio. As Rick Ferri says in last week’s Forbes article, “we buy a portfolio of five or more funds. Accordingly, the right question that investors should ask is this: What is the best portfolio approach?” He then proves that the chances of a portfolio of mutual funds beating the market are close to 0% over a long time horizon.

“The more active funds you own, the smaller the chance you’ll beat an all index fund portfolio. A portfolio composed of five actively managed funds had a 32% probability of beating an all index fund portfolio over one year, 18% over five years, 11% over 10 years and just 3% over 25 years.”

Next you owe it to yourself to ask: Who’s really in charge of your mutual fund?  How are important decisions made? Read this recent Wall Street Journal article that addresses those questions. ”When mutual-fund investors think about who’s responsible for the performance-or underperformance-of their shares, they usually tag the fund manager.   In doing so, though, investors too often ignore the people who ultimately oversee their funds: the fund trustees. The trustees have a legal responsibility to evaluate the performance of fund managers, the power to hire and fire them, and the authority to set the fund’s fees as well.”

So now, after knowing what you know, consider looking at ETFs.  A must read is Tools To Help Pick ETFs.  ”Exchange-traded funds have become increasingly viable as core ingredients of a diversified portfolio. Originally pitched as low-cost alternatives to stock index funds, ETFs are now available for almost every asset class.  But with more than 800 ETFs on the market, choosing which funds to buy has become more difficult.  Some online services from brokerage firms and others can help with both tasks…”

Hopefully, after using the mutual fund fee analyzer and reading these articles you’ll finally be convinced to sell every actively managed mutual fund that you own on Monday and replace them with low cost ETFs. It could mean the difference between retiring in a tent in your backyard instead of in a villa in Cabo.

Sadly, it was no surprise to learn the Goldman Sachs threw their clients “under the bus” by deceitfully selling them mortgage securities while at the same time making a killing on shorting the housing market.  Their slogan, “Helping clients build and preserve their financial wealth” needs a minor adjustment. “Helping clients build and preserve OUR financial wealth.” This is a paragon of the Wall Street ethic – make money (hmmm – a lot of money) even if you must trample your client under foot. When you manage your own diversified portfolio of ETFs through a MarketRiders account, you truly get Wall Street out of your pocketbook by removing the intermediaries.

The Wall Street gurus seem to have a closet full of tricks to help investors outperform the market. Unfortunately, most of this advice is unproven and ineffective. In this MoneyWatch article, James Picerno points out one of the ONLY scientifically proven secrets to boost portfolio returns year-upon-year – disciplined rebalancing. Mr. Picerno underscores that rebalancing can deliver a 0.5 to 1.0 percentage point annual bonus compared to what you’d earn on the same portfolio that’s left alone. Our research shows that by using MarketRiders’ advanced rebalancing algorithms rather than a simple calendar based approach, investors add up to 2% additional growth in some portfolios and market conditions. We have more on this topic here: “How Often Do I Need to Rebalance?”.

When it comes to retirement investing, remember that you don’t have as many friends in the financial services industry as you think. By taking the time to learn the virtues of low cost indexing, global diversification and disciplined rebalancing, you will truly build and preserve YOUR wealth.

A few other noteworthy tips that surfaced recently are highlighted below.  I hope they are of interest to you.

* Economist and “Sunday Morning” Commentator Ben Stein stopped by “The Early Show” Thursday to discuss advice from his new book, “The Little Book of Bulletproof Investing.” Stein explained how to maximize your income while protecting your savings from financial calamities.  Interested to learn more, read the complete story:

* Mr. Madoff spends free time in the prison library on the weekends and often watches movies, including “Lethal Weapon,” according to the former inmate. He said he chatted with the admitted Ponzi schemer on Saturdays in the library and asked for financial advice: “He gave me ideas on my index funds.”  Mr. Madoff advised him to diversify, saying he should invest in funds that track the S&P 500 index of stocks “where my money would be on all the stocks instead of putting my eggs into one basket,” the former inmate said.  The source might be questionable but the advice is good.

* Lastly, TIPS-short for Treasury Inflation-Protected Securities-offer investors the closest thing Uncle Sam has to a sure bet these days. These bonds have the full backing of the U.S. government and provide investors with returns that will keep pace with future rates of inflation, as measured by the U.S. Consumer Price Index. You can buy them directly from the government, but it’s easier-and a better investment decision in many cases-to buy low-fee ETFs that hold TIPS. Read more.

So when it comes to investing in any type of fund, be it index mutual funds, exchange traded funds (ETFs) or mutual funds, investors need to be their own advocate.  Do your homework to understand your true costs as no two funds are exactly alike.  ’Americans save trillions of dollars for college education and retirement by investing it with funds managed by industry and giants like the Vanguard Group and Fidelity Investments.’

If you are new to the game, beginners should brush up on Investing 101 basics. There are a lot of choices. Make the smartest choice for YOU.  Just remember, time is your friend.  Money spent on fees today, compounded over time, is money that could be sitting in your retirement account. Do your homework, you will thank yourself later!

Retirement Planning

They all have numerous components worth serious consideration. 

When it comes to investing,  “it isn’t enough to simply tend to your 401(k) and pray for Social Security.”  Make sure you challenge your current investment portfolio.  Should you really be invested in high cost mutual funds, or can you accomplish similar returns and diversification with comparable risk at a lower cost with index funds or exchange traded funds (ETFs)?  Challenge your current asset allocation and make sure it really mirrors your financial needs and desires for retirement as well as your tolerance for risk.  Question whether you are getting good value from your investment adviser for the cost you are outlaying.  Know that there are tools out there to guide and help you do-it-yourself at a much lower cost.

“Your retirement plan probably looks different than it did a few years ago. Yet things aren’t as awful as you might imagine. We’ve turned the corner on some key financial fronts, and it’s both safe and smart to start thinking about your golden years again.”

The study concludes that “The decline in retirement preparations could be directly related to companies no longer offering 401(k) matching, layoffs and the housing crisis. Lack of retirement planning forces many to work until they are much older.”

To that I say you need to start investing in the market by establishing your own individual retirement account (IRA).  Look to start investing in low cost investment vehicles such as exchange traded funds (ETFs). Not only will you be able to save on fees, that in turn stay in your own portfolio and compound over time, but also they allow you to be in the market with less risk than individual stocks. ETFs are a basket of stocks or bonds that track an index, not individual equities, and thus are inherently less risky. I also suggest utilizing tools offered by marketriders.com to get guidance on how to build a portfolio with an asset allocation that suits your financial needs and offers you diversification.

I realize 2009 was a tough year, but know that any amount you can add to your retirement portfolio today will have greater benefits to you in the future.