Follow the money

Follow the mon­ey. That’s my answer.

The biggest chal­lenge I get about the Elephant’s Paycheck Blueprint has to do with the dis­be­lief that some­thing this sim­ple can exist with­out every­one know­ing about it already.

If you build an Elephant’s Paycheck Blueprint port­fo­lio, who makes mon­ey? No one real­ly.

When you pur­chase your ini­tial shares you’ll like­ly pay a com­mis­sion between $8 — $10. After that, you’d only pay sim­i­lar when you sell… but we hope that’s a long time in the future. If you own five com­pa­nies, that’s less than $50 for the bro­ker­age you work with. Hardly enough to return your phone calls.

Even if you pur­chase shares on a month­ly recur­ring amount, you can usu­al­ly set­up direct pur­chase plans that have no costs (or absolute­ly min­i­mal costs). You’d pay a com­mis­sion on sale, but again, we hope to sell only a long dis­tance in the future. Again, no one mak­ing mon­ey on you.

If the bro­ker­ages are not going to make mon­ey on you, why are they going to tell you about invest­ing this way? Unlike Faceook or Google, they don’t put ads on their web­site to off-set “free” prod­ucts.

I came across a great arti­cle on Wealthfront, tak­ing it to task for being expen­sive and hid­ing behind dou­ble-talk and fun­ny math.  It explained the same thing very well, in nice bold text:

Vanguard is the only com­pa­ny in the finan­cial indus­try that is not try­ing to make a huge prof­it off of you. Everyone else is talk­ing their book. EVERYONE.

The whole arti­cle is real­ly worth read­ing. Here’s the link again.

By the way, the phrase “talk­ing their book” refers to sell­ing you their stuff (the stuff in their order book).

I’ve nev­er worked with Vanguard, most­ly because I pre­fer to get into the details of how I invest. In fact, I recent­ly wrote about how com­pa­nies like WealthFront dis­em­pow­er you from long term wealth build­ing. Reading the arti­cle above, I under­stand how Wealthfront lock you in and not only dis­em­pow­er you emo­tion­al­ly but lit­er­al­ly. It would be awful to invest with a com­pa­ny and after­wards real­ize that mov­ing away from them requires tons of paper­work or a big tax hit.

Back to Vanguard. Very inter­est­ing stuff, even rec­om­mend­ed by Warren Buffet.