I Will Teach You To Be Rich: No Guilt. No Excuses. No BS. Just a 6-Week Program That Works

In Chapter 6, Sethi tackles the primary belief preventing people from investing in the stock market: the idea that lucrative investing is about picking winning stocks and that professional advisers and stock brokers know how to pick these stocks and can thus beat the market. As he does with credit cards and banks, Sethi argues that regular individuals can handle their money effectively without paying professionals whose services aren’t worth their fees. Wealth managers, financial advisers, money managers—these professionals claim to be able to beat the market, but in truth almost nobody beats the market over the long term. Individual investors are thus best served by putting their money in low-fee brokerage accounts and leaving it there to compound over time.

The chapter opens with an anecdote about wine tasters. A researcher at the University of Bordeaux conducted an experiment whereby he blindfolded professional wine tasters and asked them to describe two wines. Although both were white wines, he told the tasters that one was red and one was white. Predictably, the tasters praised the “red” with standard descriptors like “full-bodied,” proving that they were, in fact, unable to tell the difference. The wine tasters were simply repeating conventional wisdom. The point is that Americans trust experts too much, especially in the financial realm. Like wine experts who can’t tell the difference between red and white, finance experts can’t tell which stocks are going to be winners.

Sethi writes, “Financial experts—in particular, fund managers and anyone who attempts to predict the market—are often no better at the job than amateurs. In fact, they’re often worse.” (189). Sethi proceeds to provide evidence for this argument throughout the chapter. He explains how so-called experts forecast, or “time,” the market; he elaborates on how the media overhypes market fluctuations; and he explains how financial advisers mask poor performance. Even if a financial adviser makes 13% for a few years, in the long run, they’re likely to make no more than the market itself—a solid 8%. The people who do beat the market over the years—Warren Buffett, David Lynch, David Swensen—can do so because of access to investments and resources that are not available to the average investor. “The only long-term solution,” Sethi concludes, “is to invest regularly, putting as much money as possible into low-cost, diversified funds” (192). Sethi supports this claim with a study conducted by Putnam Investments that demonstrates that it’s impossible—or at least highly unlikely—to beat the market consistently over time.

The other issue with financial advisers is that they are not obligated to do what’s best for the people who hire them. If they’re paid on commission, they have a reason to recommend expensive funds. To drive this point home, Sethi tells a story about a friend who was being taken advantage of by his financial adviser. When the friend, Joe, tried to fire the adviser, the adviser responded with emotional manipulation. Joe realized that his adviser was not fiduciary, meaning that he wasn’t required to put Joe’s interests ahead of his own. If readers insist on working with a financial adviser, they should work only with fiduciary advisers.

Sethi asserts, “The key takeaway is that most people don’t actually need a financial adviser—you can do it all on your own and come out ahead. But if your choice is between hiring a financial adviser or not investing at all, then sure, hire one” (199). People with complex financial situations, including inheritances, may benefit from the help of the right professional; the rest come out ahead when they take control of their own money.

Sethi provides a script for readers who, despite his warning, insist on working with a financial adviser. The most important question to ask is about the adviser’s fees. Many advisers charge up to 1% in fees, which doesn’t sound like much but becomes a huge amount when compounded over time.

Financial advisers may not be worth the time but investing is. Mutual funds are often considered the simplest and best way to invest. These funds are collections of stocks that are actively managed by a portfolio manager who tries to pick the best stocks to get the best return; the fee, or “expense ratio,” is usually 1 to 2%. By contrast, index funds, which are collections of a certain type of stock—for example, healthcare or international funds—are passively managed by computers that try simply to match the market. As a result, index funds have significantly lower fees than mutual funds. Sethi compares the two in a table that shows how much an investor would pay in fees and earn after 5, 10, and 25 years with a mutual fund verses an index fund. Fees are the enemy in investing. Sethi cites John Bogle, the founder of the Vanguard Group and the creator of the index fund, on the dent that mutual fund fees can make in an investor’s returns. 2% in fees can lead to a 63% decrease in returns.

Sethi ends the chapter with a list of invisible scripts about financial advisers, and a reiteration of the fact that even financial advisers who beat the market one year are unlikely to do so over time.