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Invest for the Future Without Wall Street

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You can be forgiven if you’ve lost faith in the stock market. While over long periods of time, the stock market has historically provided results that could potentially grow your wealth better than any other type of investment, there may be some fundamental differences in the economy that make those results different in the future. Also, after the recession, many investors have the impression that volatility has increased. Individual investors get the impression that the odds are stacked against them, in favor of high-frequency trading and large, institutional investors.

Ninety years from now we may look back on the twenty-first century and see a booming global economy that has expanded into more developing nations, or we may see a world that from a capitalistic growth perspective has past its peak. That, in combination with disdain for Wall Street, may be the threat that is fueling the public’s avoidance of the stock market.

The returns for which the stock market is famous came as a result of investing in an economy with room to grow, so for those only concerned about growth potential, the solution may just be a matter of broadening a profile far beyond the shores of the United States. For those preferring to avoid the sock market, developing an investing plan that’s likely going to help you save for the future is going to be difficult.

FutureRon Lieber, a money-focused columnist with the New York Times whom I’ve mentioned here often, assembled a financial plan for investors who are completely fed up with the stock market. It’s a plan that, as much as possible, avoids not only investing in the stock market but working with companies that trade on the stock market. I wrote about mutual insurance companies and how they might offer a benefit to policyholders over public companies, and that same structure exists for investment companies. Evan from My Journey to Millions pointed out that Vanguard is the investment equivalent of a mutual insurance company. Vanguard is not traded on the stock market, it is owned by its mutual funds, and therefore by all the investors in its mutual funds. The company’s profits are used to return dividends to its investors and to lower management fees.

When owners and investors are the same, companies can’t take advantage of one group to benefit another. That’s the benefit in theory, but whether it is true in actuality is something that would need to be studied. Regardless, it may give investors a better feeling about the company with which they are investing. For that reason, Lieber recommends investing with Vanguard, USAA, or TIAA-CREF. Vanguard and USAA also offer ordinary retail banking as well, so you can replace your for-profit, fee-raising Wells Fargo or Bank of America with these customer-owned companies for a Wall Street-free banking experience.

If you’re on the “Main Street” side of the debate with Wall Street, you may be interested in investing in your community while seeking long-term financial returns. Lieber recommends looking at municipal bonds as a partial replacement for stock market mutual funds. While cities and states rely on bonds to attract investors, particularly when tax revenues aren’t enough to fund infrastructure improvements or economic development projects, mutual funds that invest broadly in municipal funds can add social responsibility and profit to your portfolio.

Municipal bonds, however, are cozy with Wall Street. Large, for-profit investment companies often work closely with state and local governments to manage the individual bonds. Governments would not be able to get the capital they need without these banks, and the companies have an opportunity to make quite a bit of money from the deals with governments. This shouldn’t dissuade you from investing in municipal bonds. Economies improve when the financial institutions within those economies thrive. If you’re vehemently opposed to anything that might give an advantage to a company identified with Wall Street, however, municipal bonds won’t give you much separation.

Lieber urges readers to look at real estate as an option for long-term investment, but he stays clear of discussing the investment as a surefire method of building wealth fast. Have you noticed that the gurus who formerly pushed real estate investment as the key to building wealth have been all but silent over the past few years? Perhaps I’ve tuned them out, but the late-night infomercials pushing real estate seminars and get rich quick schemes seem to have quieted down.

The focus for real estate is on rental income and eliminating the mortgage fast rather than building a real estate empire using leverage from one property to another. In fact, if you want to avoid Wall Street in your investment plan, you would have a more difficult time making use of that leverage. You’ll need to lean on credit unions for mortgages. You may end up with good rates, or you may not even qualify for investment mortgages with a credit union. These types of institutions, in an effort to protect their customers, may be more conservative when it comes to lending than banks, many of whom bundle their mortgages as investments for other banks and off-load the risk.

The proper way to view real estate as an investment opportunity is to look at the potential for rental income. It’s possible to earn a living as a landlord, but it could be a significant amount of work identifying the right properties, the right locations, and the right tenants, and you’re relying on some luck in terms of timing. There’s always the risk of a good tenant becoming a deadbeat. With no mortgage on the properties, though, the formula for long-term profit is much nicer, and it can be done outside of the finance industry.

Peer-to-peer lending can provide good returns if you happen to live in a state that has relaxed regulations. This is still a new industry, and it’s clearly designed to sidestep the mainstream financial industry. Peer-to-peer lending cuts out the middleman, and that middleman happens to be a very powerful industry. Bank executives don’t publicly acknowledge peer-to-peer lending as a threat, but the grassroots industry is a growing highway of financial transactions without Wall Street toll-takers.

Don’t believe that no one is getting rich off the plight of people looking for better rates for loan consolidation, as many peer-to-peer borrowers are. Prosper and Lending Club are backed by venture capital firms that, while they aren’t public, are certainly designed for profit.

For me, the biggest drawback of peer-to-peer lending is that the investments aren’t liquid. Invest in the stock market, and if you need the money in a pinch, you can sell your stocks and get the real value of your wealth back in cash minus transaction fees and the spread between the bid and ask prices. With your money tied in peer-to-peer loans and call your investment before the loans (or the basket of loans) have reached maturity, you may have to settle for receiving back less than you invested. This same is true if the value of stocks decline at an inopportune time, but I see the lack of liquidity as a problem people tend to ignore, particularly when they compare peer-to-peer investing with the low returns of savings accounts.

All of these options focus on using the money you already have to create more wealth. This type of “passive income” is all the rage. Letting your money do the work for you is much more appealing for many people than earning money with their labor. The top 1 percent in terms of wealth in this country earns most of its income through investments, not from a salary. Yet, one of the most successful method of building a financial future for yourself is starting a successful business. It requires time and effort — more than you might put into a salaried job — and it isn’t for everyone. It’s risky, and there’s a significant likelihood of losing money with a new business, but the rewards can far outpace investing in the stock market with 15 percent of your salary.

Will you try to avoid the stock market in your investing plans? My impression is that most shizennougyou readers see an overall pullback from the stock market as an opportunity to find good investments when fewer people are looking. I’m not sure how well that approach will play out, though, with institutional investors and computers running high-frequency trading programs ruling the market, but it’s nice to think that any downturns today provide great opportunities over the long term. That’s what I’m still counting on.

Photo: cogdogblog
New York Times

Updated June 23, 2016 and originally published August 6, 2012.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar 1 Anonymous

So Lieber’s idea is to invest in muni bonds, real estate and P2P lending?

Sounds like a winning portfolio with fantastic returns!

I, for one, will be investing heavily in an aggressive 100% equity portfolio. The S&P 500 is up 11% YTD and up 61% over 10 years. 6% average yearly return going through a huge downturn is pretty damn good. Good luck to the average person in achieving that same return with Lieber’s ideas.

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avatar 2 Anonymous

I can understand people’s nervousness of investing in the stock market. And people do make money off other people’s plights. But to ignore the stock market is a grave mistake. That’s why long-term investing in the stock market with proper asset allocation and diversification is important–have a strategy. This doesn’t mean you have to invest all your dollars and pennies in the market.

Real estate and muni bonds are all fine options. It’s just a matter if it fits in your financial circumstances. And real estate requires research and money. How do you decide between buying a residential property or reducing your risk with a duplex, triplex, or other multi-unit property? Should you hire a property management company, and if so, are you willing to share you profits?

And if people are looking for “passive” investing, have they considered low cost index funds?

Just my thoughts. Now, I need to check out your piece on mutual insurance companies.

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avatar 3 Anonymous

I’m mostly done with equities, and I reject the argument made ad nauseum by the high-powered Wall Street marketing machine that you must devote the lion’s share of your savings to stocks to have a chance of accumulating enough for retirement. That’s just pure baloney.

Let’s say it becomes clear that the only way a hypothetical individual can accumulate the nest egg she needs to retire is by going to Las Vegas and putting one-half of her current savings on one spin of the roulette wheel–red or black–or by investing half of her nest egg in high payoff lottery tickets. Would you recommend this person take this approach? Of course not. Why? It’s too risky. The exact same rationale applies to investing the routinely recommended percentage of your nest egg in equities.

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avatar 4 Luke Landes


What’s your plan for building wealth for your own retirement? The Wall Street marketing machine is incredibly powerful, but the alternatives can’t begin to promise similar returns without much more risk (or perhaps the same amount of risk, perhaps risk is disguised in a “well-balanced” stock portfolio).

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avatar 5 Anonymous

I successfully avoided the stock market for the first 20 years of my working career. I invested in income property and did very well. I turned it into a business and added businesses to it. It helped me achieve financial freedom. About 20 years ago, I sold it all and invested in the stock market. Although my investment grew, I prefer a mix of business and investments.

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avatar 6 Luke Landes

Hi krantcents,

I’d like to hear more about your experience with creating income property, adding businesses, and ultimately selling. I’ll send you an email.

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avatar 7 William @ Drop Dead Money

I hear what people like that say, but I’m not sold on their arguments, because they’re long on generalities and short on specifics. And none of them is the richest man in the world yet. All our drop dead money is tied up in equities (or cash while I wait for a dip), and it has worked very well for us. And it’s not going to change any time soon.

There are plenty, plenty of people who make good money in the stock market by investing – as opposed to gambling, day trading or speculating. No knock on those activities, but I don’t call them investing.

There are plenty of good opportunities for investing in equities – just look at the folks on aaii and (to a lesser extent) Motley Fool. Like a rental property, it involves some work and some trial and error to find things that work for you, because we all have different temperaments. At the moment, there are mREITs that pay out in cash 12% per year in monthly dividends. That will work for at least another year or two until interest rates rise. Hard cash.

As for me, I’ve managed over 20% per year for the past few years. Unquestionably, there was some luck involved and I may never repeat those. However, I also remember Gary Player’s quote when he got heckled after sinking a long put. Just a lucky shot, a guy from the gallery yelled. Player stood, looked back and smiled. “You’re right,” he said. “That was a lucky shot. But the funny thing is: the more I practice, the luckier I get.”

I don’t invest in “Wall Street.” I invest in real companies that make real products or deliver real services and make a profit doing that. I rarely change out of positions in less than a year. I use an online trader for the few trades I make and never get told by a broker what to do. There are plenty of awesome online resources, most free, for the little work that is required. Seeking Alpha is the Wikipedia of stock investing and it’s free.

It has worked for me and I KNOW I am not that smart. Fortunately, smart is not a requirement. Patience, yes, diligent in digging, yes. But anybody can be those.

I just can’t see any other method yielding a more consistent return. But, as they say, different strokes for different folks…. :)

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avatar 8 Ceecee

I haven’t given up on the stock market. Sure, you can lose money some of the time, but you can also gain much faster than with a .5% bank cd. If cd rates improve as I get older, I would consider a cd ladder. As long as the yield curve is not inverted, always getting the five year rate usually works well.

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avatar 9 Anonymous

The signal to noise ratio in the investing world is terrible – too many get rich quick schemes for the average Joe to know where to look. I can’t blame people for making mistakes. Good post

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avatar 10 Anonymous

Retiring at 59
Saved 60,000 already taxed to live on 59-62 (covers gap until SS)
Saved 350,000 (401k’s)- approx. 1000 a month for 30 years – (est value of house 200,000)
1 rental property – approx. 1000 a month after expenses (taxes and repairs)
Conservative SS est- 1,000 a month for spouse and myself
Primary house – paid off – (est value of house 300,000)

= approx. 4000,00 a month until late 80’s at which time – houses can be sold for senior living.

lived on a lot less than this while paying everything off and don’t have kids so no need to have anything leftover.
I’d appreciate any feedback

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