Our Roles in the Economy

should be responsible for learning about investing but it is simply too easy to fool people who were never given clear information about a complex subject.

For the purposes of this discussion, an annuity is a special investment tool for people who have used up every other option to store money for retirement. Wealthy people pay a premium to an insurance company to have a tool that allows them to put away even more money on a tax deferred basis. Prior to 1974, an annuity was needed for a 403(b) retirement plan. Today, many of these plans are still set up with annuities which offer absolutely no value to the retirement plans for our teachers, civil servants and not-for-profit employees. They are paying excessive fees with the same end result as the five year example above.

Stock brokers and mutual fund managers try to beat the market. That is, they sell their "service" to investors and that service is a promise that they will somehow figure out things nobody else can. With their magic, they will earn you a better investment return with the same information that is available to anyone with an Internet connection. And what's even better is that they will do this consistently; year after year. Right! Keep in mind that insider trading is illegal. Your investment advisor would go to jail for making an investment based on private information about a company that has not been shared with the public so there is no information your broker has that you don’t have. We're not saying there aren't some really sharp people out there with incredible financial acumen or even amazingly good luck. But the odds of someone outperforming the market consistently are about the same as the odds that you will get struck by lightning! You have a much better chance of coming across someone who adds absolutely zero value to your investment. Or worse, you may find yourself working with someone who destroys your financial future because you trusted them with something you didn’t understand.

From 1929 through 2012, the average stock market return was 8.8%. This is calculated at 4.6% price appreciation and 4.2% dividends or money paid by companies to their investors. That means that on average you can expect to earn less than nine cents per year for each dollar you have invested. If you search online, you will find different rates of return. For example, according to investopedia.com, the stock market returned an average of 11.21% from 1928 through 2010 and an average of 3.54% from 2001 to 2010. That statement is more telling than the actual return, no matter what it is. Because we are talking about an average return over a long period of time, it’s more important what will be happening when you need to begin spending the money you have invested. If you were to earn 30% during that year, it would have a far different result than if you lost 30%. Keep in mind the example above. It's possible to experience a decade of poor performance. It's all about timing and if the chips are down when you need to begin spending the money you have invested, it's going to cost you.

Investing in the stock market is a passive investment strategy. That means you don't have to do anything to earn a return or loss on your investment. That is very attractive to a large number of people. At the same time, most people have to work. If you were to