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Jordan Belfort, famously known as the Wolf of Wall Street, has some unfiltered opinions about Wall Street, which he describes as a “giant, bloodsucking monster” and a “fee machine complex” wreaking havoc on the global financial system. He’s now advocating a surprisingly simple and conventional approach to investing in his new book, “The Wolf of Investing,” emphasizing the merits of the S&P 500 Index.
Belfort, a former broker who made a fortune through questionable penny stock sales, subsequently lost it all in a whirlwind of drugs and debauchery. After serving time in jail for securities fraud, he’s returned with investment advice that he believes can help the average person amass wealth over time.
In a recent discussion with Yahoo Finance, Belfort shared his insights, focusing on the S&P 500 Index as a key component of his strategy. While it may not be as exhilarating as his former life on Wall Street, he believes it offers a secure path to financial success.
Here are some edited highlights from the conversation:
Q: What is the central theme of your book?
A: Belfort’s book promotes long-term investing, highlighting the challenges of picking individual stocks or bonds and trying to beat the market. He underlines the power of long-term compounding, reinvesting dividends, and making consistent contributions to your portfolio to accumulate substantial wealth over time. The key is to understand that you don’t need extraordinary annual returns to retire with a sizeable nest egg.
Q: What irks you about how Wall Street functions for the average investor?
A: Belfort identifies the dual nature of Wall Street, acknowledging its value in creating wealth and serving a crucial role in the US economy while acknowledging its flaws. He stresses the financial industry’s tendency to create an alluring atmosphere that draws people into short-term trading and pursuing the latest trends. Belfort believes that individual investors are often poor stock pickers, frequently buying when they should be selling and vice versa. He suggests that the solution lies in adopting a more passive approach.
Q: You’ve become a strong advocate for the S&P 500 Index. What’s the appeal?
A: Belfort explains his admiration for the S&P 500 Index, considering it an ingenious tool to capture the value generated by the US and global economies. By investing in this index, individuals gain exposure to a wide range of companies with a track record of delivering consistent returns. Belfort emphasizes that index funds, like the S&P 500, help protect investors from their own impulsive decisions, which often lead to trading at the wrong times.
Q: What’s your advice for someone saving for retirement?
A: Belfort suggests a portfolio composition that evolves with your age. For those in their thirties or forties, he recommends an 80% allocation to the S&P 500 Index and 20% to a total bond market index. As you get older, he suggests adjusting your portfolio mix to reduce exposure to risk.
He emphasizes the importance of regularly reinvesting dividends and consistently contributing to your portfolio without getting caught up in the short-term market’s ups and downs. Belfort urges investors to focus on long-term goals, regardless of whether the market is trending upward, downward, or sideways.
Q: Is it okay to invest in individual company stocks?
A: Belfort acknowledges that investing in individual stocks can be fun and empowering but advises that it should only account for a small portion of your capital. He cautions investors to set aside a specific amount for speculative investments, acknowledging that they might lose it.
Q: What’s the biggest investing pitfall for people?
A: One common mistake Belfort highlights is the belief that investing a small amount won’t lead to substantial wealth. He discourages the pursuit of high-risk investments with the hope of achieving massive returns, instead advocating for the power of long-term compounding. He underscores the importance of patience and the mathematical certainty that, over time, compounding yields significant results.
Q: Any final thoughts?
A: Belfort warns investors to be wary of the Wall Street fee machine, which often leads people to make decisions against their best interests. He emphasizes that the financial industry operates in a way that is skewed against individual investors. Finally, he points out that even if new Wall Street ideas succeed, they eventually become part of the S&P 500, benefiting investors who follow his strategy.
