My nine year old son, Jack, recently left $28 and a note on my desk saying “Bank it!” Want to know how I got my kids excited about saving for the future? Listen to this 90-second audio clip about the power of compounding.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This information does not reflect historical or expected results for any specific Hill client or prospective client, and is not intended as a recommendation appropriate for any individual. Investments involve risk and the possibility of loss of principal, and are not guaranteed. The values used in this report were obtained from sources believed to be reliable and do not reflect management fees. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser before investing.
This month, our team read the new Morgan Housel book, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness. It is THE best personal finance book we have read in a long time. Why? It is filled with real stories that show, instead of just tell, the real impact investing behavior has on people’s financial lives. Matt Hall recently interviewed Morgan Housel on his podcast, and Housel shared some of these astounding stories and more. Listen here!
Our favorite takeaways:
Rich vs. Wealthy
Rich is out in the open like a flashy sports car, while wealth is the money that you don’t see but has the capacity to change lives – yours or others. “Rich” is empty. Wealth is rock-solid. How do we get wealthy? Save a bit more than you spend over a long period of time, and try not to interrupt the compounding. Sound familiar?
The importance of time, and the magic of compounding
Compounding is so hard to imagine because it is by definition not intuitive. Warren Buffet is 90 years old, and he’s worth roughly $90 billion. That’s a huge number. It gets even crazier when you realize 99% of his net worth came after his 50th birthday, and 97% came after his 65th birthday. That’s worth repeating – 99% of his net worth came after 50. The lesson: once wealth starts compounding over time, the numbers get bigger faster than you can imagine. Also, it’s really never too late; however, starting today (or yesterday) is the best. That’s the long view in neon lights!
How to feel “better off”
If the more you make the more you spend, it will always feel like the goal line is moving. To feel better off, growing the gap between what you earn and what you spend is key. One exercise that has helped our clients is understanding what “enough” means for them. From a place of enough, any additional dollar earned contributes to growing wealth.
So how do you define “enough”? In our experience, a simple dinner conversation with family is a great place to start. If you want help facilitating that family conversation, let us know – family meetings are one of our favorite services to provide.
Do you eat your own cooking?
At HIG, we “eat our own cooking.” Translation: we invest our personal investments the same way we invest our client’s. While that sounds like an obvious statement, it is not the norm in the financial advice world. Sadly, not even close. Morgan talks about how important it is to ask experts how they apply their expertise to themselves or their family. For example, ask your doctor what kind of care they would want if they were in your shoes. You might be surprised by the answer. Curious to learn more? Give us a call.
Have you found yourself asking, “Who cares about diversification? Shouldn’t I put everything in the US market?” Here are a few reminders as to why we go global with our clients.
It’s no secret the US market has performed exceptionally well over the past several years. Still, as the saying goes, you shouldn’t put all your eggs in one (market) basket.
- The US market hasn’t been the best performer this year. Sweden, Denmark, Finland, Ireland, and Norway all outperformed the US market in the third quarter of 2020, with Sweden pulling ahead of the US by almost 8%. In fact, over the past year, Sweden has outperformed the US market by 12.7%.
- There’s no reasonable way to predict which country’s market will outperform and when. Less than a year ago, Finland, for example, went from the third worst-performing market to the third-best market this past quarter.
- Guessing wrong could have a significant impact on returns. The difference between the best performing developed market (Sweden) and the worst-performing market (Portugal) was 20.7%. The gap was even wider amongst emerging markets, with 30.5% separating India at the top of the list and Turkey at the bottom.