Here’s a dirty little secret about the financial services industry. Mutual funds, hedge funds, insurance companies, and investment brokerages don’t make money by making you money. They make money by charging you FEES. They charge fees for entrance into the stock and bond markets of the world. At it’s core, that entrance ticket is cheap and simple. Buy stocks and bonds and the growth of those investments come back you. This is easily, simply, and inexpensively accomplished via an index fund.

But financial services companies are for-profit enterprises. Selling the cheap entrance ticket doesn’t advance their own business interest. So they add complexity. Actively managed mutual funds, hedge funds, futures, options, and day trading are all examples of making the simple more complex at an additional cost to the investor. And the worst offender of this complexity is permanent insurance policies. Behind the insurance contract the thickness of a book is the same stock and bond market we can all access. But they add a web of carnival game rules. Death benefit, premiums, cash value, floors, caps, participation rates, surrender charges, loans, withdrawals, cost of insurance, and riders are but a few of the rules these contracts introduce. When the insurance company makes up these rules, they aren’t thinking “how can we make our customers rich” they’re thinking “how can we make this sound good so it will sell, while maximizing our own profit”.

Remember: Complexity does not favor the investor.

Buy the cheap entrance ticket to the market. Put your investing dollars into low cost index funds. If you need life insurance, buy the simple and cheap option: Term life insurance. If you do this you’re covered if you die, and if you don’t die you’ll be much more rich.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy