First it got entangled in the sub-prime mess by repackaging and selling mortgages without any transparency of the risk associated with these investments. Next, a slug of Ponzi schemes started to surface, topped by the infamous actions of Bernie Madoff.
It gets worse. New York’s attorney general Andrew Cuomo is now shedding light on the secret, million dollar bonuses paid out to over 700 Merrill Lynch employees, even while its buyout partner, Bank of America, was asking the government for bailout assistance.
To top it all off, The Wall Street Journal recently reported that two more major brokerage firms, also on the government take, are prepared to pay their top stockbrokers upwards of one million dollars each as bonus retainers to keep them from jumping ship and transferring to competing brokerage firms.
That is the dark side of Wall Street that we read about every day. But if one were to take a step back from the gloom and doom of the past 18 months to find a bright spot, we would discover that a few financial firms, through the introduction of innovative investments, are making it easier than ever for you to ignore Wall Street, invest wisely, and get on with your life. Let’s take a closer look.
At the heart of the Coffeehouse Investor philosophy is the thesis that capital markets are relatively efficient, if not always rational. As a result, it makes sense to invest in low-cost index funds to maximize your return potential in this asset class.
Several companies, including the Vanguard Group, (www.vanguard.com) and Barclay’s Global Investors (www.ishares.com) have recently introduced “all world” index funds that allow investors to own a globally diversified equity portfolio with just one investment.
Vanguard’s Total World Index Fund (VTWSX) invests in approximately 2900 companies around the world, with a market capitalization makeup that broadly mirrors the cap-weighting of the 47 developed and emerging markets that are included in the index.
Barclay’s iShares MSCI All Country World Index Fund (VCWI) is an exchange-traded fund (ETF) that is similar to Vanguard in its global cap-weighting structure. Its low expense ratio of .35% allows you an ideal opportunity to capture long-term global equity returns while getting on with your life.
Sure, there might be some minor downsides to investing in just one fund for the equity allocation of your portfolio, like potentially missing out on the small and value premiums of global markets, but that is trivial compared to the price one pays when latching on to the disingenuous advice and high fees associated with Wall Street crowd.