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Don't Get Bulldozed Playing the Wall Street Game

Sure, it's rigged. But you can play it to your advantage.

money, pro tips

Free is good

Even while some on Wall Street continue to dream up new ways to separate you from your savings, others are engaged in a price war that’s making it ever cheaper to be an investor. Brokers Fidelity and Charles Schwab offer exchange-traded funds (ETFs)—similar to mutual funds, except you can trade them more easily— that you can buy without paying commission. Vanguard has been slashing fees on its own ETFs and mutual funds for years, forcing competitors’ prices down with them. The Vanguard Total Stock Market Index Fund charges a fee of one-twentieth of a percent, which means you can invest $10,000 and own all the stocks in the U.S. market for a whopping fee of $5. Want to take a flyer on Russia? Stocks are cheap there. The Market Vectors Russia ETF charges just over half of one percentage point. Even if your father could have bought a basket of emerging market stocks back in the day, he would have had to pay through the nose for the privilege.

Financial advice is also getting cheaper, as a bunch of start-up advisory services, including MarketRiders, SigFig, and FutureAdvisor now charge as little as $10 a month for unbiased advice. These guys are blowing up the old models and helping investors grab the low-hanging fruit. One reason money management seems so complicated is because the traditional financial companies liked it that way— they could charge you big bucks to help you navigate the maze. The newcomers are like today’s Apple to 1990’s PC.

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Benefit from insider trading

Once you accept that frequent trad- ing and paying high fees is a great way to transfer your wealth to Wall Street, the solution is fairly obvious: Invest in low-cost, broad index funds, which are dirt cheap and own all the stocks in the market. In addition to being inexpensive (honestly, it’s probably their greatest attribute), index funds can insulate you from many of Wall Street’s sins. They rarely trade, which means the flash boys have less opportunity to skim pennies off the top. Another benefit of that reduced trading is lower taxes. And you own every company in the market, so when those wily bankers start bidding up the price of a stock because they have inside information, you can savor the gains—you already own it!

Go ahead, read Michael Lewis’ book Flash Boys—it’s a good story. And enjoy the feeling of knowing that the flash boys can’t touch you.

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