A Different Wealth Building Perspective

Today I thought we'd do something a bit different and explore a different perspective on how to build wealth. You know I highly recommend JL Collins' The Simple Path to Wealth where he advocates throwing everything into VTSAX and letting it ride. I offer up a different perspective from Kurt Fischer over at My Money Counselor. While I don't agree with everything he says, I do agree with some of the principles. Diversifying your income stream is a fabulous idea, and he has some great suggestions to that end. Also, if you would like to know more, Kurt is offering his guide to Fiery Millennial readers for free (aka my favorite price). Find the instructions in his author bio at the end. Enjoy!

Be Different: Invest Smart

Every Millennial knows that, to retire one day, he or she has to build wealth—a lot of wealth. But the smarter we are about investing savings and generating healthy returns to help build wealth, the less we have to cut back on current spending to save for retirement. How we invest our savings is just as important as how much we save. Smart investing for the long term means more money for fun today! That’s all the motivation I needed to learn about investing! And the more I learned, the more I rejected the standard advice to sink all of my cash into stocks.

Resist Wall Street’s Marketing

Stock investing is too risky, costly, and rigged against small investors to play a dominant role in most people’s retirement planning. Sure, careful stock investing can play a useful part in most investment portfolios, but it should be a relatively minor part with a specific aim, not unlike precious metals.

Yeah, I know: heresy. Virtually every financial advisor and CNBC pundit says the opposite. They say that to have any hope of retiring comfortably, you must invest the lion’s share of your retirement savings in stocks. But understand this: all of these people have a personal financial stake in the popularity of small investor stock investing. Without your money helping to further enrich Wall Street, they’re bust. I don’t have a stake, and I’ll stay solvent no matter what you do with your money.

Make no mistake: it’s the high-powered Wall Street marketing machine—not any objective analysis—that has made “stocks are the best investment” conventional wisdom.

Stock Investing and Retirement Planning: a Toxic Mix

I have written extensively in support of my point of view on stock investing’s suitability for retirement planning. I don’t want to overwhelm Fiery Millennials’ readers with a recitation of my arguments, but here are a few selected points with links to supporting articles.

  • High investing fees cripple a retirement fund’s growth. See “Killer Fund Fees”, “Active Fund Management’s Record”, and “Is Your 401(k) a Rip-Off?
  • Since about 1995, stocks have adopted a wild bubble up, and then crash profile. Any asset with volatility this extreme is unsuitable for a big role in a retirement plan. See “Stocks: Too Risky for Retirement”.
  • Modern day stock markets are rigged to fleece small investors like you and me. See “August 24 ETF Calamity” and “Michael Lewis on High-Frequency Trading”, for examples.
  • Stocks’ historical 7% (or whatever) average annual return is the centerpiece of Wall Street’s stock promotion message. But the point is bogus for at least two reasons: First, the modern day economy and stock markets in no way resemble their historical counterparts. So why should anyone expect historical performance to persist? Second, the inconvenient truth is that stock prices have regularly dropped or been flat over time periods that matter to we mortals. (One example: over the 51 years 1932 – 1982, the Dow Jones Industrial Index rose on average just 1.9% per year.) Millions of small investors have had the bad luck (and it is just luck) to invest over a period of stock price doldrums or retire just before one of the now regular market crashes, then die or run out of money before stocks reached The Promised Land: the blessed “long run,” over which stocks always outperform everything, or so goes the sermon.

In short, only a Wall Street marketer could claim with a straight face that stock values’ wild gyrations is characteristic of the best way average Americans can save for a secure retirement. Only someone whose livelihood depends on convincing people to buy stocks could disregard stock values’ modern tendency to regularly “go poof” and urge middle income Americans to buy stock with cash carefully saved and set aside to pay for food and electricity when these folks are in their 70s, 80s, and 90s.

But as I’ve already noted, stocks can play a constructive, but I’d suggest minor, role in retirement planning. If you choose to invest in stocks, I suggest these guidelines:

  • Do your homework. Understand, from independent sources, stock investing’s true risks.
  • Don’t accept at face value investment advice from financial industry insiders.
  • Remember: only YOU put first your family’s best interests.
  • Saving enough for the sort of retirement you want not only doesn’t require stock buying; I would argue that building wealth is actually easier—and less stressful—without stocks.

Build Wealth WITHOUT Stocks

If not stocks, then what?

This is where things get exciting! Once you recognize stock huckstering for what it is, your eyes and mind will be opened to a huge world of opportunity to build wealth.

My overarching suggestion is to invest in opportunities where you can exercise some control and leverage your talents, skills, and energy. Step back and think about it: when you invest your nest egg in stocks, you’re putting your retirement lifestyle fate in the hands of financial advisors, fund managers, and corporate executives you’ve probably never met and know little or nothing about. On its face, doesn’t that strike you as preposterous?

Instead, don’t just look for but actively seek and cultivate opportunities to build and sell your skills and talents.

Once upon a time, long ago, a person could work for someone else for 40 years and retire comfortably. Today, only suckers devote the most productive years of their lives to helping their bosses and owners of the business where they work get rich (or, more likely, richer).

Don’t get me wrong—paid employment is a wonderful invention, and nearly all except the Mark Zuckerbergs of the world start with a job.

But don’t look at a job as a career. Look at it as a means to gain experience, expand your skills on your employer’s dime, and build contacts. If these aren’t possible where you’re working, then move on—you’re largely wasting your time there.

To be a bit more specific:

  • Adopt an entrepreneurial mindset, and cultivate friendships with entrepreneurially minded people. With every person you meet, every article you read, every experience you have, a part of your brain should be asking the question: is there an opportunity here? Can I (or me and a partner or two) create a tool or service to fulfill the unmet need or desire I’ve just recognized?
  • Invest in yourself. See “Invest in You” to learn what I mean.
  • You have passions and interests. Challenge yourself to create a side gig (or gigs!) that generates income while you pursue a passion.
  • Worn out baby boomers are retiring in droves. That means a big oversupply of boomer-owned small businesses are for sale. It’s an ideal time to buy a profitable, turnkey, small business with untapped potential and use your skills, talents, and energy to take the business to the next level. Think about it: probably most or all of the wealthy people you know are or were small business owners—not stock investors!
  • Learn about self-directed IRAs. You could become CEO of your own retirement fund mini-conglomerate, Warren Buffett-style!
  • Engage the sharing economy. Like spending a life working for others, owning a bunch of expensive stuff is for suckers and will bleed the life and cash out of you. Don’t live large; seek to live small! Besides saving tons of cash and life-energy, you’ll preserve your mobility and be better ready to jump on opportunities.

Millennials: Too Smart and Savvy to Rely on Stocks for a Secure Retirement

Watching their parents get crushed by two stock market crashes of 50% (with a third imminent?) in just the past 15 years has sobered Millennials’ outlook on equity investing—and rightly so. Wall Street is working hard to convert Millennials—just as it converted their parents, aunts, and uncles to its mythology—but so far the money managers’ marketers have not found an effective message. Wall Street’s usual patronizing “wussy strategy” has failed on Millennials. I’m curious and eager to learn what Wall Street tries next to keep its bandwagon rolling.

Self-Reliance is the Best Path to Financial Security!

To reiterate the central theme of the sampling of ideas I’ve outlined for building wealth without stocks: Stay lean; look at jobs as ways to build skills, experience and contacts; adopt a relentlessly entrepreneurial mindset and surround yourself with like-minded people; and invest your cash close to home in opportunities to exploit your skills, interests, passions, and energy and over which you have some control.

And don’t be a sucker! ☺

Kurt Fischer holds a B.S. in Chemical Engineering and an MBA-Finance, both from the University of Illinois. Among other pursuits, he owns and runs the personal finance website Money Counselor, and is the author of the compact 5-volume Simple Guides to Debt, Credit and Wealth, including volume 2: Build Wealth WITHOUT Stocks. Kurt is making available exclusively to Fiery Millennial readers a free copy of the Simple Guides, including Build Wealth Without Stocks. Just drop Kurt a quick note at kurt(at)mymoneycounselor.com and write “Free Guides” in the subject line.


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5 thoughts on “A Different Wealth Building Perspective

  1. While I agree with having an opportunistic, entrepreneurial spirit, I still think a sizable investment in diversified stock index fund(s) should play in important role in most people’s portfolios. Interesting perspective.

    • I agree. Just because the market flucates like crazy doesn’t mean I can’t make money off of it while it does!

  2. The author provides little evidence for his claims, and the scant evidence that he does provide is misleading at best.

    His arguments against stocks are primarily emotional arguments based on fear, not hard facts. He claims that everyone who says that stocks should form the base of one’s retirement portfolio has somehow been either hoodwinked by Wall Street marketing, or has a financial stake themselves in convincing people to invest in the market. Conveniently, only he has seen the “truth” and can be trusted to give impartial investing advice. (Never mind that all his supporting evidence links back to his own website where he sells advertising and his own financial advice products!)

    High investing fees can be easily avoided by choosing index funds, and holding your accounts with reputable custodians such as Vanguard, Fidelity, etc.

    There is very little evidence to suggest that stock market volatility has increased over the past 20 years. On the contrary, there is evidence that market volatility has remained relatively unchanged since at least the 1940’s. (http://mutualfunds.com/expert-analysis/has-stock-market-volatility-increased-yes-and-no/) Furthermore, volatility is of little concern for retirement savings as both investments and withdrawals will take place over a long period of time (decades), which significantly mitigates the risk of short-term (days to months) volatility through averaging.

    Markets are not rigged to disadvantage small investors. The stock markets are regulated by the federal government (SEC), and while it isn’t perfect, it does promote transparency and prevent much of the fraud and market manipulation that we would see in a completely unregulated market. In addition, the rare short-term market swing will not disproportionately affect small investors so long as they stick to buy-and-hold principles. If a small investor diversifies his/her holdings into broad market index funds and does not try to time the market or buy/sell shares based on short-term market performance, he/she will do just fine.

    The author claims that “the modern day economy and stock markets in no way resemble their historical counterparts”, without providing any evidence to support this claim.

    In addition, he cherry-picks a single 51 year time period (1932-1982) in which the Dow Jones showed lower than average performance and claims that it proves that the stock market can’t be counted on for 7% returns. There are several problems with this claim. The Dow Jones is not a very good indicator of broad market performance because it measures only 30 companies chosen by committee, and is a price-weighted index which allows higher-priced components to have greater weight on the overal index performance. A far better index to use is the S&P 500 index, which comprises the largest 500 US companies by market capitalization, and is cap-weighted instead of price-weighted so that share price alone does not skew the index performance. Using the S&P 500 index over the same time period (can be done here: https://dqydj.com/sp-500-return-calculator/), it is seen that the index returned an average of 1.846% per year, after inflation. So was the author right about the market? No! The 1.846% value does not include the returns from reinvesting dividends! If you reinvested your dividends over the same period, you would have averaged 6.663% per year over the period, slightly lower than 7% but not by much. Looking at all 51 year periods, the S&P 500 has averaged 6.568 % annually (after inflation and with dividends invested), with a standard deviation of 1.130 % (source: https://dqydj.com/sp-500-historical-return-calculator/). This is enough to increase a starting investment by an average of over 25x in real value over all 51 year periods!

    Instead of investing in the stock market, the author advocates for… what exactly? We don’t know. All we get from the author is vague encouragement to “invest in opportunities where you can exercise some control and leverage your talents, skills, and energy”, and to “seek and cultivate opportunities to build and sell your skills and talents.” He devotes one bullet point to running a small business, but doesn’t explain how this business will magically give equal or greater returns with equal or lesser risk than the stock market. The stock market as a whole is a collection of businesses, each trying to out-compete the other and return maximum profit for itself and by extension its shareholders. Over time, some businesses will fail and others will swoop in to capture the revenue of the failed companies. All the while, all businesses are constantly innovating to create new value which benefits the market as a whole. By owning pieces of many, many businesses as in a broad-market index fund, the failure risk of any one business or business sector is mitigated. In contrast, running a small businesses is not diversified and has significantly greater risk compared to investing in the market as a whole. Of course, a small business promises has a chance at greater returns than the overall stock market, but only at the cost of the higher risk of failure. There is no such thing as a free lunch! Claiming that small business ownership is a better path to retirement than the stock market is ludicrous!

    I don’t know why you decided to allow this drivel onto your site, but I think you would be better off writing an original piece on the parts that you do agree with and leaving the rest of this article in the trash where it belongs.

    • Well said, Mitchell. I occasionally like for people to see what else is out there just to compare with what I’m writing. Plus, throwing out random stuff just to stir the pot occasionally is amusing to me 🙂

  3. I think the author is right on.

    Lots of versions of this data – buying at a peak gives a great chance of poor returns. Yes the fed can inflate a flat market but only so long.


    The financial structure of the economy of the US and the world is not the same as 1929 or 1945. To assume that the 100 yr average is what you are going to see is naive. But if you want to believe it – go right ahead.

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