The End of Personal Finance

(Douglas Rushkoff, the author of Life Inc., is a guest blogger.)

My friend and neighbor Helaine Olen just got a nice piece into Slate about the way that our finance gurus let us down. It's the same story I've been looking at for the past decade, but told in a pretty immediately accessible way - particularly for Slate's audience. While Helaine concludes that she'd be satisfied with a genuine apology from the finance industry for how badly they served personal investors, I feel like I want more: an admission that they were actually successful in their industry's greater quest, which was to enact the greatest redistribution of wealth to the wealthy since about 1300. Let's hope it isn't followed by disastrous unemployment and a plague this time, too. Excerpt:

Years ago, when I wrote a popular financial makeover feature for a major national newspaper, one of our subjects asked if he should be plowing his more than $50,000 in savings into gold. It was 1997 and gold was trading at a little more than $300 an ounce. The financial planner assisting with the piece laughed dismissively, and the question never made it into the final write-up. Well, my bad. As I write, gold is hovering around $900 an ounce.

For more than two decades, as income inequality increased and job security decreased, Americans lapped up personal finance columns, books, and television shows. We thrilled to stock tips and swooned at sensible strategies for using dollar-cost averaging to invest in no-load index funds. Buy and hold, my friends! The annualized gain for the S&P 500 stock index over time is more than 10 percent! You, too, can turn into the millionaire next door. Carpe diem, folks! Seize the financial day!

The advice proffered by the vast majority of analysts, would-be gurus, and television pundits came down to one word: stocks. Some, like CNBC's infamous Jim Cramer, advocated stock-picking strategies. Others encouraged mutual funds. But very few--at least of those that could get publicity via mainstream outlets--doubted the efficacy of the market.

The End of Personal Finance (Slate / The Big Money)

• [Anonymous]

  @badstorydan:

  Yeah, but 10%/yr isn’t bad at all, especially when everyone else is down hard over the same 12 years at the moment. Gives you the opportunity to sell the gold to stock market castaways at a high return, then buy their now unwanted stocks at rock-bottom prices and sit on them ’til they rebound, furthering your profits.

  Don’t look at me that way, I never bought or sold a mortgage-backed security in my life, honest ;)

• [Anonymous]

  The year was about 2000 and the stock market was off the hook. I had gotten out of debt 3 years prior and finally had a little savings. I knew jack about the stock market, but because I worked in Silicon Valley that what was going on was about half hype. A business based on ad rotators, Yahoo, was not worth more than a a company that made things or a country’s GDP. I also noticed gold was going for $280/oz and I started buying a little here and a little there as my savings permitted. I stopped when it reached around $420. Mind you, I was not super rich but I did slowly stash away about 40 oz over the years and when gold hit 900/oz I sold. I was very happy with my return but I will tell you from experience that next time I buy gold it will be in ETF form so I don’t have to locate buyers and deal with them. It took me 8 years to triple my meager investment. Also if you are buying the physical stuff get a safe deposit box! I had my place broken into once and I could have lost everything. Some paranoid people will tell you not to do this, however, which is more likely to occur, random theft or government asset seizure?

• [Kid Geezer]

  Gold!? For christ’s sakes. And be sure to keep it under your pillow. If you had followed this advice in the 1980′s you might be breaking even and there would have been zero positive multiplier effects from your investment in the meantime.

• [danegeld]

  Once you’ve bought gold, (and even beforehand) it’s an immutable object – either a literal a brick that you put in a safe, or a piece of paper noting that someone else keeps a brick on your behalf.

  One thing that’s certain is the physical lump of gold really didn’t grow at all between when you could buy it at $300 and when you could sell it at $900.

  (There’s a lump of platinum in Paris which is used to define the kilo, the whole point of which being that it hasn’t changed since the end of the nineteenth century.)

  The change in value of gold reflects sentiment, and the relative ease with which new gold can be extracted from the ground.

  In that sense it’s no different to property – a house costing $300K in 2001 which could be sold for $500K in 2006, even though it was the same physical pile of bricks and mortar.

  The bubbles are at different stages of the cycle, that’s all.

• [SKR]

  What a piece of dreck. I guess my return over the past 2 months is completely illusory. I think the problem is that most people like the author aren’t investors and think they can drop some money in some stocks and come back 6 years (really, are you serious?) later and it will have grown enormously. You have to take some personal responsibility for your finances and keep on top of your investments. An understanding of the market doesn’t hurt either.

  Also, as others have pointed out the free advice you get on TV (from Kramer et al.) is worth about as much as you pay for it.

  The underlying problem, of course, is that people want to make the majority of their money simply by *having* money – and that’s just not a terrific creation of value.

  Actually those investments provide the capital corporations need to create. So there is a terrific creation of value simply by investing when it is compared to having that money simply sit under your mattress neither doing anything nor helping others do something. Investors provide an incredibly valuable service to the economy even if they aren’t toiling in a field or factory.

• [lakelady]

  the sky is falling the sky is falling!!!

  as I read this I was listening to the current DJIA which is above where it was on Jan 20, 2009 and not far from where it was on Jan 1, 2009.

  And who should plead the larger mea culpa? The pundits who were driving eyeballs and eardrums to advertisers….or the greedy fools who listened to them and wanted to get rich quick?

• [invisibelle]

  Reminds me of the stories my father told of his days as a stockbroker/financial advisor for one of the major investment firms. He suffered from severe depression from the things he was told to do by the firm bosses — things that were never in his clients’ best interests, but rather in the firm’s best interests.

  It got to the point where it was between suicide and quitting. Thankfully, quitting won.

• [Anonymous]

  they were actually successful in their industry’s greater quest, which was to enact the greatest redistribution of wealth to the wealthy since about 1300.

  Can’t be said enough times!

  The “economic crisis” is well-scheduled final profit taking by the Bush puppeteers. All is going entirely as planned (with the exception of Obama and McCain poisoning the TARP funds boo hoo hoooooooooo).

• [Fiddy]

  I had the chance to buy gold at that price ($300/oz.) and was advised that it wasn’t a wise investment, just as she mentions in her anecdote. Since then, I’ve encountered a bunch of free market gold bugs who adore Peter Schiff, and they’re sitting on lucrative gold investments and other precious metals and are greatly enjoying the circus into which Wall Street has descended — all because they ignored the people who told them the same thing I was told.

  What Olen fails to note in her article is that Peter Schiff didn’t just endorse Ron Paul in the primary election season, he served on the campaign as Paul’s economic adviser. This is why Ron Paul alone of all the presidential candidates was warning voters two years ago that the financial system was in grave danger of collapse, that the Federal Reserve was incapable of dealing with such an event, and was, in large measure, responsible for it. He warned that the investment bankers’ lobbying money had bought most of the congressional representatives serving on the banking and finance committees, and had drafted the legislation that repealed Glass-Steagal and other laws that allowed the system to fail, and engineered the “transfer of wealth to the wealthy.”

  And Paul was, of course, ridiculed mercilessly during the debates for being an alarmist and out of touch with reality.

• [hockeybrad]

  I’ve only ever listened to two financial guys, my guy that I invest with and Dave Ramsey (sparingly, whew). Both of them hate gold (long term returns of less than the rate of inflation) and love mutual funds (long term returns of near 12%). Sure, my investments decreased in value greatly when everything went to shit, but that’s happened to the market how many times over the past 90 years? It’s already rebounding and it’s only been a year.

  Spreading the idea that the stock market is bogus and that gold is the real investment is only going to make YOU the idiot pundit in 5 years when gold is back down and stocks back up. How are you different?

  I’m playing devil’s advocate here a bit because I do believe that pundits were reckless and wrong, but in the same vein as the housing market, there are two sides to the equation: the sellers and the buyers.

• [johnphantom]

  #2 HockeyBrad: I have no financial expertise, but I do believe the stock market rebounding lately is mostly the effect of the bailout.

  I see things really going to shit over the next five years, before we truely recover.

  I am not trying to be a troll here…

• [Falcon_Seven]

  The primary rule of investing is the ‘Rule of Seventy-two’. How much of an annual return do you need on your investment to have it double in seventy-two (72) months. If you can’t take the risk on that, then you’re in the wrong game. Most people don’t have the will -or money- to play in that league and that should always be the primary responsibility of an investment adviser, the assessment of a client’s risk aversion. If you’re advising people on investments and can’t assess that by what they tell you, then you’re in the wrong game, too.

• [Anonymous]

  I read this article yesterday, and while i agree that the success of “personal finance gurus” is shaky at best its a little bit naive and scapegoat-ist to blame them.

  First off stocks and investing is not a science. Everyone’s going to have their opinions and these can change in a week, a month, a day. There’s a reason why investment accounts always say they’re not insured or guaranteed.

  Not much piece of mind when your entire 401k is in mutual funds, but regardless everything has a risk. I think that’s where the problems lies. No one should ever take what these people say as word. If Jim Cramer say buy Ag stocks but you don’t feel comfortable, don’t buy it. Simple. What works for one person is not what works for the next person.

  I get the premise that we feel like we have no other option, and sure the system is broken and it would be nice to know the government has our back, but everyone needs to accept responsibility. If someone told you to jump off a bridge and you did it would you blame them?

• [Anonymous]

  The stock market bought as a whole will return you money over a long period of time. People with less than 10 years till they need thier money should not have been fully invested in the stock market. There is plenty of information out there that tells people this. Every investment has inherent risk. I find it hard to believe people don’t know this. I think many people chose to ignore it. There are no shortcuts.

• [Anonymous]

  Personal finance book are like diet books. They always try to latch onto whatever is the rage, and they promote an easy way to lose weight/gain money. The truth is simple, though.

  If you’re overweight the formula is simple but extremely difficult to follow: Eat less and exercise a lot more. Also, you have to be consistent; none of this diet-on for one month, diet-off for three weeks. That doesn’t work, ever.

  If you’re looking to save for retirement the formula is simple, but again, it’s extremely difficult to follow. Consume less and save a lot more. Also, you have to be consistent.

  I agree that there are a huge number of variables that affect “consumption” and saving. And, I agree that individual financial situations require individual game-plans; where-as most overweight people can follow the same rubric.

  However, the simple truth remains: there are no magical diet books and there are no magical personal finance books. To blame authors who rode the wave of consumer greed for causing everyone to have a bad financial year is ludicrous.

  And, when you go to financial self-help websites, don’t read the bullshit on the front page for day-traders. Click over to the retirement saving and–regardless of the source–the story is almost always the same: Start early, create a game-plan, revisit your game-plan annually to compare your goals/needs, and stick to your plan–regardless of how you feel emotionally, or how the world is telling you to feel.

• [Anonymous]

  If you spent time letting finance “gurus and analysts” ruin your life, then I have an Orbo I’d like to sell you.

• [JimEJim]

  Don’t hate the players. Hate the game.

  Recognizing the whole system is an arbitrary game that we created stops making it so surprising when you see certain groups losing.

• [BadStoryDan]

  Aa 300% return on gold over 12 years is slightly less than 10% annualized..

• [Anonymous]

  Seriously? Helaine Olen? That Helaine Olen?

• [rushkoff]

  I love math like that. It’s enough to send people to 5% bonds. Which is what I tried to do, but it failed as well.

  Still, I didn’t like the way this piece started with the whole gold thing as the best example of failed punditry, either. The part of the story that amazes me most is how advanced some of these advisers can get about investing minutia, yet how little that matters if the investments go down as much as they did.

  The underlying problem, of course, is that people want to make the majority of their money simply by *having* money – and that’s just not a terrific creation of value.

• [jphilby]

  “greatest redistribution of wealth”

  Indeed. And, in the immortal words of deep-throat: “Follow the money.”

• [SednaBoo]

  What happened in 1300?