Newsletter – March / April 2009 – Financial Morality

Financial Morality

“Love of money is the root of all evil.”

When we think of good and evil in investing, we usually think of whether we make money or lose money. Making money is good: losing is bad. In the investing world, good and evil are defined in dollars and cents.

But that’s not what our opening quotation says. Its author seems to think a different definition would serve us all better. Here’s what I mean:

I talked to a mutual funds salesman / financial planner last week. He has become a fan of CastleMoore because of the way we manage investments by avoiding financial down trends. During the conversation, he revealed a very disturbing idea about the love of money. He told me that if he had switched his clients from stock mutual funds [fully exposed to the stock market] to money market mutual funds [cash equivalent], his personal income would have dropped from $100,000 per year to $25,000. If he had switched from stocks to bonds, his income would have dropped to $50,000. In addition to the initial commission they receive, mutual funds salesmen / financial planners are paid a “service fee” by the mutual funds companies: their goal is to keep their clients invested in stock mutual funds, and they are paid handsomely for doing so. This is how the mutual funds business is structured. And this is why that mutual funds salesman / financial planner wanted to talk to me.

He is a moral person who wants to do the right thing. He wants to help his clients be financially better off because of their relationship with him. He is a good man.

But when he pondered his contribution to his clients’ financial success, he realized that he was acting irresponsibly toward them. He realized that by continuing to recite the mantra “don’t sell,” he had done serious financial harm to those who trusted him. And, because of this, he felt deep doubt about the way he earns a living.

After chatting with him for a while, I began to see what his problem was. He was almost ten years behind the times.