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10 investing tips to beat Wall St. even without a ‘fiduciary rule’

Obama wants safeguards for retirement savers, but his plan is likely DOA

President Obama’s new fiduciary rule for retirement advice is DOA. Why? Not just because a 2004 GOP Senate killed the fiduciary rule Vanguard’s Jack Bogle has been pushing for over a half century. Not just because Wall Street banks will defeat any and every proposed fiduciary rule, just like they’ve been killing all bank reforms like Dodd-Frank since the 2008 crash. And not just because Janet Yellen’s Fed favors too-greedy-to-fail banks versus America’s 95 million Main Street investors.

Even if Obama’s fiduciary rule is not dead on arrival, it will get buried soon in Washington’s deadly partisan graveyard. No such rule will ever go far in today’s hostile GOP Congress, any more than Bogle’s Fidelity Rule did a decade ago. Why? Because banks will fight to the death to protect the hundred of billions in fees generated without any fiduciary rules. Banks and the financial industry a ideologically selfish. They will never voluntarily put the investor’s interests first, never!

Even without a fiduciary rule, America’s 95 million Main Street investors can beat Wall Street at its own game, building a bigger, better retirement portfolio. Here’s how: Last year we built our own new set of rules based on a comparison of fees in the Wall Street Journal. Listen:

“For example, imagine putting $200,000 in stock ETFs averaging 0.04% fees. Do that and you’ll have $2 million for your retirement in three decades. But put the same $200,000 in mutual funds charging the industry average, an annual fee of 1.25%, and you’d have only $1.4 million in 30 years. Yes, you lose $600,000. You’d have $600,000 less for your retirement years. Meanwhile, some clever advisers would pocket your $600,000 into their retirement accounts.”

Even if Obama’s new fiduciary rule is DOA, you can beat Wall Street as a do-it-yourself investor managing your portfolio without paying any of Wall Street’s excessive advisory fees. So here are the 10 secrets of successful investing, 10 simple investment tips on how easy do-it-yourself investing really is:

1. The biggest secret to successful investing — low expenses, period

When we published “The Lazy Person’s Guide to Investing” one of the most valuable tips came from a study the Financial Research Corporation did for the big fund-industry insiders. They studied five fund categories: domestic equities, international-global, corporate bonds, government bonds and tax-free securities. Eleven predictors were tested: Past performance, Morningstar ratings, expenses, turnover, manager tenure, net sales, asset size, and four risk/volatility measures, alpha, beta, standard deviation and the Sharpe ratio. Only one had any predictive value — the expense ratio. All others were unreliable, including Morningstar’s ratings and the Sharpe Ratio developed by a Nobel economist. Bottom line: pick low-cost, no-load index funds.

2. Vanguard’s Jack Bogle warns: Wall Street is a rigged casino, get out

So why stay with Wall Street? With managed mutual funds? With the entire financial-advice industry in what amounts to a rigged casino? Vanguard’s Jack Bogle has been asking these questions for decades. In his classic, “The Battle for the Soul of Wall Street,” Bogle called this loss of a moral compass “mutant capitalism.” He sees financial markets as a gambling casino with millions of “croupiers” manipulating the gaming tables 24/7, skimming billions off the top.

3. Never trust the financial industry, it has no moral compass

Their total focus on getting rich is reflected in a Jason Zweig Journal column, “Investors: How Dumb Are You?”: “The average investor in all U.S. stock funds earned 3.7% annually over the past 30 years.” That’s a third of the S&P 500’s 11.1% annual returns. Yes, stock funds have underperformed the market about 7.4 percentage points annually for three decades, according to Dalbar, a financial-research firm in Boston that has updated this oft-cited study each year since 1994. The S&P 500’s capitalization is over $15 trillion. With Wall Street skimming 7.4% annually, investors are losing over $100 billion from their portfolios every year.

4. Your stock-picking skills are as good as your Wall Street’s

Nobel economist and neuroscientist Daniel Kahneman used the casino metaphor in his book, “Thinking, Fast and Slow.” Based on “50 years of research” he found that the “stock-picking skills” of managers and advisers is “more like rolling dice than like playing poker.” Their picks are no more “accurate than blind guesses.” In fact, “this is true for nearly all stock pickers ... whether they know it or not ... and most do not.” Ouch.

5. Markets are notoriously unpredictable, irrational and dangerous

Wharton economist Jeremy Siegel, author of “Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies,” researched 120 of the biggest up and the biggest down days in the stock market, for over two centuries. Guess what? In only 30 of those “big-move” days did Siegel find any reasons for the market’s movement. In other words, 75% of the market’s biggest twists and turns in history were unpredictable and irrational black swans. Wall Street is simple guessing.

6. The more you actively trade, the less money you will earn

Warning: Active trading will not you bring bigger profits and peace of mind for retirement. University of California finance professors Terry Odean and Brad Barber researched 66,400 portfolios with a big Wall Street firm over six years. They found three factors resulted in substantially reducing investor returns: transaction costs, stock-picking skills and taxes. Active traders averaged 258% portfolio turnover annually, but they earned less annually, seven percentage points less, than buy-and-hold investors whose average turnover was a mere 2%.

7. Online trading makes it easier to lose lots of money faster

Another Odean-Barber study shows that investors who converted from off-line to online trading saw their returns drop substantially. Before going online they were beating the market by 2%. Afterwards they were losing, falling to less than 3% under the market. Huge drop. Stay out. Before Ameritrade went public, the founder, billionaire Joe Ricketts, one of the largest online discount brokers told Fortune: “The best thing, really, for an investor to do is buy a good company and hold it ... Trading often and heavy is not something that makes you a lot of money. That’s contrary to my own interests, but it is the truth.”

8. Investors brains are wired to act irrationally, losing at the top and bottom

Your trading and stock-picking skills are probably as bad your adviser’s, which may not be saying much. A Morningstar study concluded we tend to get in and out of the market at the wrong time, we buy-high, sell-low. We go in at the top. Get out at the bottom. Irrational exuberance creates a buying frenzy at the top. Investors jump in. Lose. Then hang in there as the market drops, buying on dips. More drops. Panic sets in. Then, sell at the bottom. Lose more. Warning: Playing in the market casino is a fool’s game, a waste of your time and money. Buy and hold … and hold.

9. Our brain is a flawed computer, being manipulated by Wall Street

One behavioral-finance study reported in Money magazine concluded that 88% of investors experience a phenomenon psychologists call “optimism bias,” overconfidence, then make bad investment decisions taking on too much risk, and lose. Then many deny reality, lie to themselves about how bad it was. Over half the overconfident investors who think they’re beating the market were lying to themselves, underperforming by 5% to 15%. But can’t admit failure. Yes, our brains are our worst enemies.

10. Most stock market day traders actually don’t make much money

Active trading is not the get-rich-quick scheme that many happy-talking newsletter gurus want you to believe. Yes, you can trade online for a few bucks a pop. But you can still make lousy picks. Lose fast and furious. Other Odean-Barber research proves that over three-quarters of day traders lose money. And even the most successful traders rarely make more than $100,000 a year, averaging half that.

Even the best professionals don’t trust their own ability to predict the market. Like Ted Aronson. His firm manages a $24 billion institutional fund. But his family’s taxable money is invested in low-cost index funds, his Lazy Portfolio. Asked if investors should gamble in Wall Street casino he told me: “For good reasons and bad, I’d hold tight. The good include my faith in capitalism and its ability to weather a storm, even one of biblical proportions. The bad reason is, I have no faith in my ability to time this sort of thing. Even if I got out in time, I probably wouldn’t be able to correctly time getting back in!”

Paul B. Farrell