The hottest investment trend that we’ve seen in a long time is simple:
Put all your retirement investments into “passive” index funds.
This means a big index fund from a provider like Vanguard that tracks the S&P 500 made of large, blue chip American stocks.
Vanguard’s founder, legendary investment figure John Bogle helped popularize this strategy
(He of course made his fortune by founding Vanguard, not as an investor…)
This strategy is appealing for its simplicity – why try to find good opportunities, or time the market which is very difficult – when you can just park your hard-earned money with Vanguard.
And frankly it is better than what the average person does… which is to hardly invest or plan for retirement at all.
It’s even attracted a lot of young people through a version called the “FIRE movement” which stands for Financial Independence Retire Early.
That’s a noble goal!
We’re all about people achieving financial independence.
If you’re financially independent & can provide for yourself and your family, we don’t think there’s anything wrong with retreating to a life of hunting, fishing and quiet contemplation.
But we think there are a lot of problems with this “set it and forget it” passive index fund approach.
A lot of people have done well with this passive index fund approach over the last decade.
But here’s the huge problem:
The post 2008 bull market was unprecedented in human history.
And the common notion in passive investing circles is that if you live frugally, work a middle class job, and invest extremely aggressively in total market index funds, you’ll be able to do the same.
But that’s simply not the economic reality any more.
Inflation is raging, large companies are doing mass layoffs, and technological growth is stalling.
To us this is a great example of legendary trader Nassim Taleb’s “Turkey Fallacy.”
The assumption that big stock indices will continue to return enough money to allow for a comfortable retirement…
Is like the turkey who has been pampered his whole life deciding that the good times will roll forever…
Right before Thanksgiving.
There is no guarantee that this historic bull run will keep rolling!
We are getting ready for it to grind to a halt, that’s for sure.
And the smart money seems to be doing similar.
The intellectual foundation of this passive investing strategy is the famed Trinity Study,
The Trinity study shows that a portfolio of roughly $1 million invested in an index fund (of large bluechip companies) has historically been able to sustain about a $30,000 a year lifestyle.
Not exactly the high life, but along with social security it could give some comfort in retirement.
Heres the huge problem though:
Large blue chips are no longer the engine of value creation.
They’re simply too large and too bloated. The most exciting advancements and growth are moving to lesser-known, smaller stocks and even private businesses.
So it’s far from clear that stock returns will even be positive going decades into the future…
Let alone similar to America’s historic bull runs.
Now, us here at Wealthpin have been fortunate.
Many of us do have a significant investments in index funds… And it’s certainly miles better to do that, than what most people do with their money.
But the idea of betting your family’s future on the post-2008 bull market continuing forever is insane.
And it’s possible that there is something darker beneath the surface.
This is a way to make people feel good about working mediocre jobs for decades at a time…
And the specific mechanism of the 401k is highly suspicious.
The government is willing to let you keep tens of thousands of dollars?
That would otherwise be paid in taxes… simply out of the goodness of their hearts?
We don’t buy that for a second. The only reason 401ks are tax-protected is because very powerful people want it that way.
They want you to shovel all your hard-earned money into their hands… and let them keep it for a few decades.
So that begs the question – what do you do instead?
Actually, let’s reframe that question.
What do the very powerful people do with their money?
Well thanks to a little-known database we can tell you EXACTLY what they do.