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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6 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 naïve. But if you want to believe it — go right ahead.

  4. Hel­lo,
    I think a siz­able invest­ment in diver­si­fied stock index fund(s) should play in impor­tant role in most people’s port­fo­lios.

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