The Fugazi of Wall Street
Have you ever heard of the Fugazi of Wall Street? In a great scene from Wolf of Wall Street, Matthew McConaughey plays a stock broker, and discusses the fugazi of Wall Street over a drunken lunch. If you are reading this, and you are a financial advisor, I apologize in advance, because I throw you under the bus a lot LOL.
Basically, the fugazi of Wall Street is the manipulation of numbers in the favour of selling a product, whether it be a stock or a mutual fund.
How many times have you heard, “assuming a healthy return of 5-7% percent, you will have X dollars by the age X”. You get shown graphs and diagrams all showing you how you will be rich but earning a healthy average return.
And how many people do you know that were told the same thing years ago, yet don’t have the number they were hoping for? For whatever reason.
Why? Because it was all a fugazi. Let’s look further.
Let’s take $1,000. If you invested in a mutual fund and earned a healthy 5% over 4 years, you would have $1,215.50 after the 4th year. And this is what your financial advisor would show you in their projections.
But what if there is volatility?
So let’s say, over the 4 years, you make 15% year 1, lose 5% year 2, make 15% year 3, and lose 5% year 4. So +15%, -5%, +15%, -5%. Your average return is 5%, right?
So, how come, when I run those numbers, you get a total value of $1,193.55 on the 4th year? And that’s not including any fees your financial advisor collected!
Doesn’t sound like a lot? Extend it to 30 years, and the numbers turn $4,166 and $3,769.83 respectively. That’s a 10.5% difference between two examples with the “same” average return.
The number you are always shown assumes a steady return. No volatility. How many markets/stocks/mutual funds do you know of that have moved in a straight line?
Now, the power of compounding is real. Did you know, if you were given a penny that doubles every day for 30 days, by day 30, you would have $5,368,709.12?
Unfortunately, the financial services industry exploits this concept to get you to invest in their products.
Their assumptions assume no volatility.
Thus, rather than worrying about the compounding that we can’t control (asset prices), we as Cashflownaires focus on the velocity of money that we can control (cashflow).
The compounding of cashflow is insane. AND you get compounding interest that comes with it.
If you can earn cashflow from your asset, you can use it to pay bills, buy toys, or our favourite thing to do, buy more assets.
When you have assets buying assets, the compounding is exponential. Assets appreciate, cashflow appreciates, and number of assets appreciate. It’s a beautiful thing.
On the flip side, when you have your employment income as your only vehicle buying assets, you feel like a hamster on a hamster wheel. Show up to work day in and day out, hoping you one day have enough to retire. Then when you do retire, you pray that you don’t lose your pension or run out of money.
What mutual fund/pension plan lets you buy more assets? Heck, if you really want, your cashflow from your asset can buy shares in a frigging mutual fund! But a mutual fund won’t allow you do the same unless you sell it.
If you like playing the stock market, consider learning about stock market cashflow system by taking our mini course.
Best,
Vince & Mike
P.S. Another example of exponential growth, did you know, if you folded a piece of paper 42 times, it reach the moon?
P.P.S. Most Canadians are not patient enough to build a cashflow machine that grows exponentially. It requires more work and thought than simply buying a mutual fund from their trusted advisors.
P.P.P.S. I am sorry if I offended any financial advisors. I used to be one and respect everything you do. Average people need the motivation and advice to save and invest. But I’m talking to the people that want to be above average and financially independent. Sadly, a financial advisor just can’t help you achieve the position of FU with basic mutual funds.
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