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 It's no surprise that a government that can't manage its own money would give its citizens such lousy advice. If you recall, it was nearly a year ago when President Obama stood in front of the nation and told us he'd be creating a brand-new way for Americans to invest.
His plan - allowing investors to fund what's called a myRA - went live last month. Obama touts it as the ideal way for low-income workers to build a nest egg.
Hogwash.
It's no wonder Steve McDonald calls us a nation of "money morons." Sure, a myRA comes with no risk. But the plan also come with virtually no chance of a sizeable return. After all, typical of Washington, our political pals allow just one asset in a myRA... Uncle Sam's debt.
That's right. The only asset allowed in a myRA are government-issued savings bonds (for all of you Treasury buffs, the bond replicates the G Fund).
If you want to jump-start your savings, Obama says, loan your money to Washington - and earn a whopping 1.89%.
You'll be rich... in a few hundred years.
Again, it's this sort of misguided financial advice that has Steve McDonald consistently banging his head on the table.
For his latest indictment of "Money Morons," click here or on the video below.
Steve details some scary figures. It's proof that more than half of our country is nowhere near close to saving enough for a secure retirement. And it proves our point that financial education in this country is virtually nonexistent.
It's sad, but most of the dearth in savings is a result of bad advice (see above) and inaction.
What's even worse is it doesn't take more than an hour a year to put together the sort of portfolio that can very easily lead to financial freedom.
In fact, devoting that single hour to your financial future is part of something every investor should do at the start of each year.
Unlike Obama's myRA plan, true wealth building starts with a diverse portfolio of assets... certainly not a lone investment in government debt.
It's all about asset allocation.
Asset allocation refers to spreading your investments among different asset classes, not just different securities or market sectors. For example, The Oxford Club (the publisher of Investment U) recommends dividing your portfolio into the following categories and allocations:
- 5% Real Estate Investment Trusts
- 10% Inflation-Adjusted Treasurys
Because different asset classes are imperfectly correlated - some zig while others zag - this model allows you to boost returns while reducing your portfolio's volatility.
This is the essential first step to building wealth. Yes, shorter-term trading is where the big money is ultimately made, but don't even think about trading until you have a properly diversified core portfolio. (For Alex Green's thoughts on asset allocation, click here.)
We just had our third year of double-digit stock market growth. That means the stock portion of your portfolio has likely grown beyond the allocation we recommend.
With a new year underway, spend an hour ensuring your portfolio is properly diversified. It is absolutely be the best thing you can do with your money today.
Good investing,
Andrew Snyder
Editorial Director, The Oxford Club
To access the Investment U archives, please visit InvestmentU.com.
Have "Two Cents"? Just send your thoughts, ideas or comments by clicking here.
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