These words from the cult classic, The Matrix, were spoken by Morpheus in an attempt to guide the newly delivered Neo away from the deception of the Matrix. The Matrix depicts a future where reality as perceived by most humans is actually a computer simulation created by intelligent machines to subdue humanity while their bodies’ energy is used as a power source for the ruling computers.

As macabre as this theme sounds, the Wall Street machine of big money management isn’t much different. This matrix works overtime through incessant waves of paid media to hypnotize ordinary investors into accepting a false investment reality – that active money management benefits investors. Sadly, like the sentient machines mentioned above, the Wall Street matrix deceives investors so that they can in turn suck the energy out of their portfolios in the form of hidden fees thereby feeding there ravenous appetite for profits and wealth.

Sounds strange? You don’t have to take our word for it. Instead, you can look to the Morpheus’ of our age – academic scholars, Nobel Laureates and enlightened practitioners who have broken free of the Wall Street systems and are guiding investors to a real and happier end through low cost index investing. If you remain unconvinced, you owe it to yourself to learn more by reading one of our top five recommended books below. If you are convinced but haven’t read these titles, then you should pick a few for this year’s reading list as a commitment to discipline your mind and resist the hypnosis. The Wall Street matrix never sleeps. If you want to free your portfolio to truly perform, begin by freeing your mind.

The Investment Answer – Daniel Goldie and Gordon Murray

http://www.amazon.com/Investment-Answer-Daniel-C-Goldie/dp/1455503304/ref=sr_1_1?s=books&ie=UTF8&qid=1326475159&sr=1-1

MarketRiders’ investment book of the year is The Investment Answer by Daniel Goldie and Gordon Murray. Take a Wall Street veteran who learns he has inoperable cancer, a mere six months to live, and an aching desire to expunge his conscience from participating in big money management’s abuse of the average investor, and this is what you get – a ruthlessly honest five step program to protect and grow your retirement wealth. Here you will find an eminently valuable primer which can be read and understood in one sitting, and has advice that benefits you, not Wall Street and the rest of the traditional financial services industry.

A Random Walk Guide To Investing – Dr. Burton Malkiel

http://www.amazon.com/Random-Walk-Guide-Investing/dp/039332639X/ref=sr_1_1?s=books&ie=UTF8&qid=1326474913&sr=1-1

Possibly our favorite book at MarketRiders, A Random Walk Down Wall Street, is a concise guide by influential and irreverent author and Princeton professor, Dr. Burton G. Malkiel. Malkiel takes the mystery out of personal finance by outlining a  ten-point plan for success. Easy to read and easy to follow, this practical book aimed at everyday investors cuts through the jargon to give readers the confidence and knowledge to make wise investment decisions that will provide consistent returns. This book may be the best possible starting point in an investor’s education.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns – John C. Bogle

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns – John C. Bogle (http://www.amazon.com/Little-Book-Common-Sense-Investing/dp/0470102101/ref=sr_1_1?s=books&ie=UTF8&qid=1326428452&sr=1-1)

If you haven’t familiarized yourself with John Bogle, then you can look forward to a real  treat. Bogle is the world’s greatest modern day financial hero who has spent his life defending the interests of the common investor. Having come from the bowels of the Wall Street machine, Bogle walked away from untold wealth to start The Vanguard Group, a non-profit money management company based on index investing, low fees and transparency in an effort to serve hard working people in search of a reliable retirement.  From being one of the first revolutionaries in indexing to growing the most disruptive firm Wall Street has ever encountered, Bogle should not be missed with this book being an excellent starting point.

Unconventional Success: A Fundamental Approach to Personal Investment – David F. Swensen

http://www.amazon.com/Unconventional-Success-Fundamental-Approach-Investment/dp/0743228383/ref=sr_1_1?s=books&ie=UTF8&qid=1326474581&sr=1-1

Everybody likes to hear from the top expert in a given field. In the area of wealth management, you would be hard-pressed to find someone more renown than David Swensen, the Chief Investment Officer of the thirty plus billion dollar Yale Endowment. Praised worldwide for his shockingly good track record of portfolio returns in the high teens for over a decade, Swensen is the finance industry’s Michael Jordan.

Imagine how exciting it would be to garner a private hearing with Mr. Swensen to discuss your own private portfolio. Imagine no longer. Simply pick up a copy of his book and learn why Swensen’s approach also found at MarketRiders is right for you.

The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money – Carl Richards

http://www.amazon.com/Behavior-Gap-Simple-Doing-Things/dp/1591844649/ref=sr_1_1?s=books&ie=UTF8&qid=1326475881&sr=1-1

Released just this past month, Carl Richards book, The Behavior Gap, explores the fascinating and exploding field of behavioral finance. Richards describes a strange but true phenomenon  – that year upon year average investors successfully underperform the index by several percentage points. Why? Because of something he calls the behavior gap, the difference between what we should do and what we actually do as emotions usurp our portfolio plans and dictate or investment decisions. To successfully execute the management of your MarketRiders portfolio, you will have to gain mastery over your emotions. Mr. Richards can help you get there.

PickPockets: How Wall Street Steals Your Money and What to Do About It

Coming soon is MarketRiders first book, PickPockets. This exposé uncovers the shocking truth behind the Wall Streets’ big money machine and provides an action plan for success. A compilation of Mitch and Steve’s finance columns from U.S. News and World Report, this whitty and easy to read tome provides a good chuckle as well as a good plan for your financial future. Keep an eye out for its release in the months ahead.

If you are a hard-core do-it-yourself investor who loves to day-trade, you may trust the Motley Fool or the Daily Options Trader based upon the success of their recommendations. If you delegate your investing, you may trust your friend’s son who works at Smith Barney. You know, the one who got his Wharton MBA and plays with your kids.

Conmen and Ponzi scheme operators know how to get our trust by playing with our fears and our greed. The SEC knows it can’t regulate trust, but it does regulate how advisors engender it. Thanks to laws from the 1930s, an investment advisor cannot advertise testimonials from other clients. That’s why you never see advertisements showing celebrities like Oprah crowing, “Joe Morningstar is my favorite money manager! He helped me buy this estate in Maui!” In fact, social networks are panicking many investment advisors today. We wonder: If a client “likes” you on Facebook, is he endorsing your service and leaving you open to an SEC investigation?

We may look at past performance from mutual funds for trust. But this has been proven fallacious at best; thus the fine print noting that “past performance is no indication of future results.” And as we’ve written many times, the game of performance reporting is rigged. A bad mutual fund can buy up a high-performing one and just assume the latter’s track record.

But when it gets down to it, we must trust someone or something before handing over our dough.

Unfortunately, most investors fly blindly without ever thinking through the question of, “Who should earn my trust and why?” We continually encounter investors who own a variety of mutual funds, pay enormous fees, and have no idea that they are engaged in “active” investing. They believe that if they are buying products from a large institution, then they’ll achieve their goals. We meet investors who have delegated managing their money to an individual because he was on the Barron’s “Top Financial Advisors” list.  Others find status by being able to say, “I’m a Goldman client.”

Giving our trust is a complex emotional dynamic that we’ll leave to the shrinks to articulate. But what can we learn about trust from the smartest investors in the world? Do the trustees of Yale sit with prospective hedge fund managers, look them in the eye, and then have a discussion about who has better eye contact and a more confident handshake? No. They develop investment trust, not by emotions or instincts, but through a logical evaluation of three dimensions in the following order:

1. The process. First and foremost, smart investors invest with an investment methodology. They adhere to a philosophical approach that they believe to be true about investing. For instance, Warren Buffett fans believe in buying out-of-favor, inefficiently priced stocks and holding them until everyone else changes their opinion. At MarketRiders, we focus on finding the right asset allocation and then recommending low-cost ETFs and a consistent rebalancing protocol. Vanguard fund owners have generally bought into the idea that low fees will make them more money, so they like passive investing instead of active investing. Whether or not you know anything about investing, you need to spend some time learning about the various investing “religions” and developing your own point of view.

2. The institution. Institutions come and go, as we’ve seen with Lehman Brothers and Bear Stearns. A “Wall Street Legacy” is an oxymoron. The names come and go. But doing business with a firm with a culture and track record of delivering on your process is nonetheless vitally important. The firm needs to be solid and have checks and balances and high standards of compliance. Why does Vanguard have over a trillion dollars under management? Because Jack Bogle’s original vision to help working Americans by building a not-for-profit organization has remained intact. Vanguard continually lowers its fees as it adds assets, and it adheres to its process of passive investing.

3. The person. If you have a belief in an investment process and have found an institution that embraces that process, then trusting the individual with whom you work becomes the last piece of the equation. You can make sure the individual has not been sanctioned by regulators and ask for background information. But make this is the last piece, not the first, for establishing trust. Trusting people and institutions before you’ve first developed a core belief about investing gets the whole thing backwards. Spend the time to understand the various investment philosophies and then develop your own point of view. Then look for people and institutions to help you implement it.

This is the moment that the anxious investor begins to panic. Last year it was all about raising stock prices, commodity investments and the emerging market boom. Now economists are talking about extended weak growth, how we have kicked the debt can down the road and now must pay. So what now should an investor do? Is it time to change “lanes”, to move from one overly weighted allocation model to the next in search of economy defying returns?

An investor who is constantly shifting his allocations in search of returns is similar to a stressed out driver trying to make his way down Interstate 405, the nation’s busiest stretch of highway according to the highway patrol, on a Friday afternoon before a holiday. Traffic is at a near stand still, but he is determined to get to his destination on time in spite of the fact that statistics show some 320,000 other drivers are trying to do the same.

This harassed driver seeks to dart from one lane to the next in hope of finding some small advantage. His lane grinds to a crushing halt while the drivers four lanes over seem to be effortlessly slipping by. So with great consternation, the driver slowly but determinedly works his way over, one lane at a time, rudely nosing his vehicle into spaces not fit for the common car to finally enter the sought after lane of freedom.

And for a few brief moments a wave of satisfaction washes over the driver as he hits his accelerator and pops up from 5 to 30 miles per hour finally passing that old lady who had crept along in front of him in the silver Camry, oblivious and out of touch.

But then suddenly it happens. His new lane grinds to a sudden and dangerous halt. He is at a stand still. The frustration builds. Then, as he looks to his left, he notices that the lane from whence he came is now moving freely. And as he tries to creep his way back, right there before him the silver Camry slips by with the happy old lady smiling away, at peace in the midst of the 405 storm.

This driving metaphor provides an interesting allegory for investing behavior. As globally diversified investors, one participates in the industry of millions of hard working men and women and the growth of their companies and economies. Sometimes these economies enjoy stretches of unfettered growth that is celebrated and enjoyed by all, not dissimilar to flying down the 405 on a Sunday at 8 AM. Then there are times when these businesses and economies become cramped and overburdened. Growth painfully slows as these businesses and economies sort themselves out, a sort of traffic jam.

The wise investor learns that these patterns are essential and expected components of all economies and should not have much effect on investment patterns. By accepting the simple fact that she cannot outperform the market, the wise investor can rest at ease knowing that a well diversified portfolio will reap a reward. Like the happy old lady on the 405, this investor is not happy the economies are moving slowly, but is happy because her plan accounted for slowdowns and she knows that this too will pass.

The wise investor accepts that disruptions are part of the investment journey. Although she enjoys years of high double-digit returns, she accepts that her portfolio will also be slow moving at times. There is no need to change lanes. Making significant changes to a portfolio’s allocation is expensive and usually unfruitful. Tax friction and trading costs burden such lane-changing investors with a disadvantage that must now be overcome with dramatically increased growth. And as often happens, once such an investor adjusts their allocation, as we saw this week, the news hits, economists speak, and it is time to once again, make more changes.

During slow growth, each investor has a choice. He can chase after the fast moving lane, jumping from one allocation to the next in search of a miracle, or he can accept the seasonal slow down, trust his allocations, turn on his favorite radio station and, like the old woman on the 405, enjoy the journey.

Intended or not, the controversial modern artist has successfully tapped into a deep reservoir of investor sentiment. His sculpture, though criticized by stock exchange representatives, has been met with public praise. While it remains a mystery as to what L.O.V.E. exactly stands for, it is clear that when it comes to investing, many investors aren’t feeling the love.

As good as it may feel to flip the finance industry the finger, it provides little salve for a damaged retirement portfolio. Additionally, researchers have demonstrated that bringing emotions into portfolio management is directly linked to poor returns. In fact, the burgeoning field of behavioral finance has demonstrated several areas where investors would do well to control their emotions.

Three of the most significant emotional landmines identified by behavioral finance experts are recency, loss aversion, and overconfidence:

The recency problem: Recency is the psychological tendency to overweight the recent past when reviewing historical information. The investment effect can be devastating. Apple or Google have been hot in recent months, so investors pile in. Sure, everyone remembers the collapse of the tech bubble in 2002, but this time is different, or so the deluded investor thinks.

Rejecting recency: The way to overcome recency is to follow the example of an institutional investor whose methodology is informed by deep and long-reaching historical time frames. The result is a portfolio built around very specific asset allocation goals. By defining your target allocation and committing to that focus, you can overcome the psychological impulse to follow the latest fad.

The loss aversion problem: Behavioral finance experts have revealed that investors feel twice the pain from loss as they do the pleasure of gain. When an investor’s portfolio grows by 30 percent in a year, he definitely feels good. But when that same investor’s portfolio dropped by 30 percent in 2007, he likely felt that his financial world had come to an end.

Losing your loss aversion: By acknowledging the physiological influence of loss aversion, you can begin to tame this emotional beast. Begin by taking your defined asset allocation and committing to disciplined rebalancing. When an asset class is running to the moon, a firm commitment to rebalancing will help you capture gains and prepare for future market shifts, which the science of investing suggests will surely come.

The problem of overconfidence: Another discovery is that each human has an innate tendency to subtly believe that they can outwit the markets. This Superman effect can lead investors to believe that they can leap normal investment returns in a single bound. The result is overtrading, getting married to a single security, or abandoning a pre-defined allocation. Worse yet, some investors who act on overconfidence will experience short-lived success deepening their faith in their own ability. Unfortunately, a small fraction of investors can sustain these superpowers for any length of time and sooner or later end up crashing to the earth as the kryptonite of highly efficient markets win the day.

Overcoming overconfidence: A great elixir for overconfidence is a good dose of historical reality. Add to your investing an ongoing commitment to reviewing the history of equity markets. Draw upon examples of equities and sectors that were at one moment highly celebrated but then quickly turned awry. In 1999, Enron was universally praised as an energy giant. One year later, it was toast. History is replete with examples where investors could not see the cliff around the next turn.

Instead of giving Wall Street the middle finger, embrace a disciplined approach to your retirement investing. Be aware of subliminal power of recency, loss aversion, and overconfidence. By committing to a clear asset allocation and disciplined rebalancing you will outwit your emotions and feel the investment love that seems to be escaping many.

How products, people, or ideas move from unknown to “cool” and back again was explored by Malcolm Gladwell, in his book The Tipping Point: How Little Things Can Make A Big Difference.  He offers a unique premise whereby people he calls Connectors define what is cool for Mavens who in turn popularize the new fad with Salesmen, who take the message to the world.  By this process, products, services, or fads can suddenly be thrust from obscurity to cool.

Take, for example, Crocs sandals that became the rage with pro-athletes and movie stars. These cultural icons shamelessly donned these strange pink rubber slippers. In the blink of an eye, Crocs were strangely hip. Croc kiosks offering a wide array of colors and sizes became ubiquitous in airports, malls and retail outlets to cater to kids, moms and businessmen alike.

Then one day someone ran into George, their profoundly “uncool” neighbor, wearing his neon green Crocs. For some reason, they just didn’t look the same on George — who was pale and out-of-shape, wearing shorts several dreadful inches above his knees — as they did on Kobe Bryant. Crocs were done. The complete uncool to cool and then back to uncool cycle had transpired before our eyes.

Unfortunately, investment strategies have waves of cool and uncool as well.  When we started MarketRiders, we knew that our biggest marketing challenge would be its lack of cool.  How could an investment philosophy that replaces the casino-like thrill investing with a sane, buttoned-up institutional method, ever compete with the daily fun and excitement of a Jim Cramer?

But Gladwell’s process seems to be taking hold and low-cost investing seems to suddenly be getting, well, cool.  New websites are launching every month to tout the merits of the MarketRiders approach.  Schwab, Fidelity, and Vanguard are actively swapping investors out of expensive mutual funds and into ETFs.

Cool or uncool, we’ll keep wearing our version of pink Crocs not because Kobe wears them or that our neighbor George does not. No, we stay faithful to our approach because we simply love how this pair of sandals fits.

How Mutual Fund Managers Are Like Cigarette Makers

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

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.

“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!