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!

Similarly with such market volatility in recent weeks, a few MarketRiders members have been asked to make some tough calls when, depending upon the portfolio, our rebalancing algorithms have alerted them to add to positions like, of all things, Europe. “Are you serious?” one member moaned. “Everyone knows Europe is blowing up. Why buy more now?”

Just like the man from the quote above, this member was having a tough time sticking with the plan. Sorry, but “buy low sell high” is tough to do. Successful investors must continually bet against the crowd, always with deep conviction, coupled with a tug of “unbelief.”

The MarketRiders system of buy, hold, rebalance is an investment approach, based upon solid research and unshakable facts. We can never remove all doubt, but we’ve harnessed the most scientifically verifiable investment approach known today. Rebalancing adds to returns and helps manage risk. You maintain your target allocations, and the risk level you set for yourself when you built your portfolio. Riding winners if fun, but what goes up, certainly comes down. Moving from religion to the casino: rebalancing forces you to “take money off the table” and add to losing bets that will be tomorrow’s winning ones.

It’s tough to maintain your allocations, and trimming a gold position or buying Europe while it is apparently swirling down the toilet is not easy. At moments like these, lean into the facts of the scientific research, push back your emotions and then rebalance your portfolio. You will be glad you did.

But after 50 years old, we start waking up at night worrying, “Will I ever be able to stop working one day?”  Taking action without the benefit of 20-30 years of time on your side is like swearing off steaks as you’re being wheeled into the operating room for a triple bypass:  too little, too late.

Since April 15th was the deadline for making yearly IRA contribution, the finance writers were dolling out plenty of advice and ideas on retirement. Neil Weinberg of Forbes guides us how to figure out one’s asset allocation in his article Asset Allocation -The Key to Building A Big Nest Egg.  His advice is very useful and his guidelines are similar to how MarketRiders online portfolio manager software works.  Other articles worth reading are found in the Wall Street Journal and the Washington Post, they both feature articles on ways to figure out how much you’ll need to retire.

Saving is the first step.  Smart investing is the second.  A recent MarketRiders study on how fees can devastate an IRA portfolio has been generating a lot of interest.  The study reviews three scenarios showing how a 35 year old can diligently contribute $4000 per year to his IRA, but end up losing $1 – $1.5 million over 40 years, just because of fees.

After you read this week’s articles, please fund your IRA this year.  You’ll be glad you did!

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.”

“Just how much are you going to need in order to retire comfortably?” the article challenges each of us to ask ourselves.  Surprisingly, “fewer than half workers surveyed, 46%, had tried to calculate how much they would need for a comfortable retirement.”  The article then takes you through the steps to help you determine how much is enough.  ”Based on assumptions made, you will need to save about 20 times the annual income you need your savings to generate.”  WOW!  And to be even more secure they recommend 25 times.  NOW WHAT?!?

A plan is what!!!  First take yourself through the article’s ’simple retirement planning worksheet’ then pick up your phone and schedule an appointment with an investment adviser to jump start investing for retirement. For those comfortable tackling this on your own, consider do-it-yourself investing tools. Make sure to have all your account information in front of you to get a clear picture of your financial landscape.  It might also be helpful for you to read up on investment options available today so you are informed of their plus and minuses.  Being educated will help you navigate through the conversation as they begin rattling off terms such as ‘diversification….asset allocation….rebalancing”.  Make sure you also understand the difference between ETFs, mutual funds and index funds.  With the goal to have as much money as possible at retirement, you will want to go the route with the lowest cost yet still provide you with diversification and returns.

Congratulations, you are one step closer to retiring comfortably!

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.

“The turbulent economy of the last two years has left accounts across the nation like beaches after a coastal storm — severely eroded. Clients in their mid- to late 60s are asking, ‘Can I still afford to retire?’ The answer depends on a person or couple’s assets, lifestyle and retirement goals. While retirement may still be feasible for the affluent, those less well-off or younger people whose modest portfolios have been battered need time to rebuild.”

So as you decide on your IRA investment strategy, consider an investment portfolio that provides diversification with an asset allocation fit to your financial goals and risk tolerance.  To protect your nest egg from further erosion, also be certain to entertain low cost investment vehicles such as exchange traded funds (ETFs) and index funds.  This coupled with a warm glass of milk should help you sleep more soundly at night!

Robert Powell of MarketWatch uncovers in his recent article ‘Advice You Can Count On?‘ the dirty little secret of many managed IRA accounts – fees are out of control and returns are down. This has led to recent legislation to bring some fairness back to IRA investing.  Even the White House has chimed it stating, “if investment advisers receive compensation for steering workers into investment options with high fees and expenses, they face conflicts of interest that can undermine the reliability of their advice.”

It may be years before any law is passed protecting you from high fees and expenses, so in the meantime consider taking matters into your own hands by managing your own portfolio and investing in index funds or exchange traded funds.  The money saved on fees will compound over time making for a more financially stable retirement.

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