What’s Wrong With The Modern Personal Investing World

by Jason on July 19, 2010

If you designed the world of personal investing from the ground up, you’d have a very different experience than what we have now.

Modern personal investing came long after what I would call “institutional investing” and “broker-only investing”.

When it came time to offer investing to the common man, the investment firms of the day got to create it, not the individual.

Today I’m going to pick on a few things that I see as problems in the modern personal investing world.

Lack of Control with Personal Investing

The 401K is a great tool. Since it’s creation in 1980, it’s put the power of retirement savings into the hands of the individual.

However, there is a lack of control which still exists that says, “we’ll make it simple and safe for you.” Translation: we’ll give you 5 to 10 investment choices and they’ll all have high expense ratios.

Not good.

And employers went along with this because the investment firms were creating the system. There needs to be far greater control in the employer sponsored retirement plan area.

After all, this is where the vast majority of people are savings for retirement. You’d think that all those people would demand better control, giving them better choice. But it just hasn’t happened.

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Too Much Information

Investing should be simple. Keep costs down, have a long-term mindset, use tax-advantaged accounts when available, and create a diverse mix of investments that meets your own risk tolerance.

But when you turn on Fox Business Channel, or flip through the Money section of your local newspaper, or when you pass the magazine rack, you get the feeling that everyone is a gosh darn day trader except you.

Why is there so much information? Because it sells. The simple investing concepts don’t sell magazines or attract advertisers.

Plus, brokers and mutual fund companies need this overload of information to keep people trading, to keep volumes high, which fattens their wallets with commission checks.

Not Enough Focus on Expenses in Personal Investing

Finally, there is a lack of knowledge and transparency about investment costs. Sure, you can see a few percentages on a prospectus. But what does that really tell you?

We need to see actual costs clearly spelled out on statements and I want to see my expenses when I log into my account online.

What’s wrong with putting the pricing up on the virtual wall for everyone to see? Other industries do it. It’s about time we see the reality of what’s going on. John C. Bogle said, “On balance, the financial system subtracts value from society”. Well, I say enough already.

It’s not all negative. Personal investing has come a long way, and we’re starting to see some of these bad habits being broken. Companies like Brightscope and Vanguard are leading the way. But ultimately, we the individual are going to have to create change with our pocketbooks.

Perhaps we need more free investment advice.

What do you see as a problem in modern day investing? How would you change things?

This post comes from PT of PT Money: Personal Finance. Learn more about investing and see a list of the best online stock brokers on his blog.

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