Building Wealth – Millions of people all over the world seek the key to building wealth, yet it remains an ever elusive achievement to even those that have more resources than the average Joe and Jane. In fact, it doesn’t matter if your black, white, Latino, Asian, Christian, Buddhist, Muslim, Brazilian, Japanese, Kuwaiti, British, German, Spanish, Italian, Cuban, Chilean, American, or Canadian, the key to building wealth is the same no matter your nationality, ethnicity, race, or religion. Yet so many people seek so many different solutions such as skipping from Merrill Lynch to Goldman Sachs to J.P. Morgan, to seeking out independent financial consultants, to speculating in assets they don’t understand, to buying investment newsletters to do their research for them. And the great majority of people that have been searching in this manner to build wealth are still searching today.
Why?
The answer is quite simple. All of these investors have a common denominator of failure and one lacking common denominator that is highly predictive of success. Their common denominator of failure that binds them together is the fact that all of their searches to build wealth were motivated by the desire to find the easy way out to build wealth. The placement of their money in someone else’s hands to manage, the purchase of newsletters to provide their stock picks for them, and the greed driven behavior of gambling in speculative assets. Their common missing ingredient and their reason for lack of success, is their refusal to seize personal responsibility for learning how to manage their own money.
So the million dollar question is literally this: What is the fastest way to build wealth?
The Answer: Take the time to learn a proper investing system, seize responsibility for your financial future, and managing your own money to build wealth.
Unfortunately there are truly not any viable alternatives to this answer. We’re here to show you why. Below we provide 101 Reasons Why Managing Your Own Money is the Quickest Way to Build Wealth
1. No financial consultant or investment firm will ever care more about the performance of your portfolio than you. Reasons (2) and (3) are quite lengthy because they help clarify reason (1).
2. This is perhaps the second most important reason. Most people realize that most financial consultants are nothing more than glorified salesmen and saleswomen, even if they do work for a prestigious investment firm. I’m not sure what the statistics regarding this are, but the next time you speak to the branch manager of your brokerage house, ask him to see the annual returns of the top five best-paid financial consultants in his office for the last five years. Then ask him which financial consultants in the office have earned the best returns for their clients over the last five years and ask to see these returns. Don’t let the branch manager answer your questions by giving you the annual returns of the best five internal or external money managers that the investment firm utilizes. This response does not answer your question. First of all, it is highly unlikely that the top producers hire the top five best performing money managers year after year as any major global investment firm utilizes hundreds of money managers.
By this, I mean that most financial consultants make zero decisions about what stocks are purchased with the money that you give them. They hire either internal or external money managers to do this for you. You want to find out what returns the top five best-paid producers in your office earn annually for their clients based upon the mix of money managers they hire for their clients. If a branch manager refuses to divulge this information, you have to wonder why? If they tell you they do not know, why would it be of so little significance to the firm what kinds of returns the top producers earn for their clients that they don’t even track this information?
And if they know, but won’t tell you, why would they not release this information? Shouldn’t the best paid financial consultants in any office be earning their clients the best returns year after year after year over any other financial consultant by a very wide margin. And if not, why are they being compensated so highly? The answers to these questions, if you receive honest answers, should reveal that great salesmen are compensated very handsomely by their firms while almost zero premium is put on the ability of a financial consultant to earn great returns for their clients.
3. Building on point (2), many investors will then say, OK. I’ll find myself the financial consultant, the one that falls in the top 0.5% of all consultants that really know what they are doing, and I’ll hire him or her. Here is why they are wrong again. Because most people never take the time to properly learn how to invest themselves, they never can understand the investment strategies of those that truly know what they are doing. This lack of understanding, despite any efforts on behalf of the consultant to educate the client, inevitably leads to incessant questioning of this consultant’s actions, strategies, etc. which can grow very tiresome very quickly.
I have dropped large accounts in the past because of such meddling, sophomoric behavior from clients that had a lot of money. Consultants that truly know what they are doing, despite their efforts, can not educate you fully in 3-4 hours time if you have been conditioned for years to believe the nonsense that global investment firms have taught you. Furthermore, because great consultants realize that so many widely believed concepts about investing are nonsense, and have achieved their great performance by realizing this, they will constantly be fighting an uphill battle against clients that believe this nonsense. Therefore the chances that they would keep these clients in the long run are slim to none.
Even if one finds the rare consultant that truly knows what he or she is doing, and truly has outperformed the markets significantly year in and year out, because these types of consultants invest so differently than the status quo, any lack of exposure to such intelligent investment strategies will undoubtedly cause fear. It is human nature that ignorance leads to fear. In turn, fear causes incessant badgering and questioning, a behavior that 100% of the time will cause a great financial consultant to terminate a relationship with a client.
Because great consultants achieve their outperformance by making decisions that go against the grain of what 99% of other financial consultants do, a great level of understanding of how to invest properly is necessary for one to even to maintain a relationship with a great consultant. In the end, even if one doesn’t wish to manage his or her own money AND even if one is able to find that rare 1 in 1,000 financial consultant that really knows what he or she is doing, one still needs to learn a comprehensive investment system just to maintain a healthy relationship with their knowledgeable consultant. Ultimately, this is why you should learn to manage your own money!
4. Global investment firms always tout a message of trust in their commercials. But where is the historical performance that merits that trust? 6% to 10% a year?
5. 6% to 10% will never help you build wealth. You must learn to at least earn 15% to 25% or more every year. At 8% a year, it will take you 9 years to grow $250,000 to $500,000 and 18 years to grow $250,000 to $1,000,000 in a non-taxable account, not considering the erosion in purchasing power due to inflation. At 25% a year, it will take you less than 7 years to grow $250,000 into a $1,000,000 in a non-taxable account. That’s the difference between building wealth and preserving wealth. 6% to 10% a year helps you preserve wealth, not build it.
6. Major global firms will NEVER find the best stocks in the global market and hold them in your portfolio.
7. Reason (4) is true because major firms coverage of small and micro cap stocks are appallingly light. Firms must provide extensive coverage of large cap stocks, the Genentech’s, the IBMs, the McDonalds, the General Electric’s of the world to appease their clients. However, the Microsoft’s of the future are small and micro cap stocks now. You can’t build wealth buying and holding the IBMS of the global stock world.
8. Information technology and the flattening of the information world now makes it easier for you to be much more knowledgeable than any financial consultant employed by any of the major investment firms.
9. Financial consultants, because of the payout grid that dictates their salaries, are often motivated by selling you the highest commission based products, not necessarily what is in your best interest.
10. Investors that have actually built wealth through investing like Warren Buffet, George Soros, even Mark Cuban, have all managed their own money. Investors that have already amassed great wealth employ money managers. That should tell you something about what’s necessary to build wealth.
11. Even large global investment houses only have the resources to track about 1,500 stocks. There are estimated to be over 75,000 stocks that trade globally. Investors want coverage of the most popular stocks in their country which means that the great majority of stocks that firms’ analysts cover are large cap domestic stocks. When I worked for a large Wall Street investment house, many times stocks I wanted to buy that were traded in China, stocks that returned triple digit returns in less than a year, had zero coverage at this firm. You want to own the best stocks in the world, you have to manage your own money. Give your money to someone else to manage, and chances are very very high that you will never own the best stocks and opportunities in the world.
12. There is a reason why you consistently hear statistics like 3% of individuals own 95% of the wealth, no matter what country you visit. The reason is that these 3% of people took the time to learn how to manage their money themselves and thus have truly built wealth. If you don’t believe that your returns should be limited to the knowledge of your financial consultant, then manage your own money. For example, how many times have you asked your financial consultant, I’d like to invest in gold, or I’d like to invest in dollar declining funds, or I’d like to invest in Chinese markets, only to have your financial consultant stare at you blankly and say, “the safest way to invest is what I’m doing for you now.”
I once heard this anecdotal story. A wealthy individual asked his financial consultant, one of the top producers at his firm, why he didn’t own any stocks in the Chinese stock market. The consultant said just give me some time and I’ll get you a list of stocks that we can buy. When he produced the list, the list contained the American-based Chinese restaurant chain P.F. Chang’s stock. If this is the kind of advice a top producer gives, you may think how can he be a top producer?
RECOMMEND READING Wealth Management (FT Guide) – Jason Butler
