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.