How Can I Grow Wealth?
- Massive increases in stock prices of well-known tech companies can give investors a sense of easy money and lead us to chase "the next big thing."
- We don't think that's the best way to grow wealth. We believe it's better to start with clearly defined financial goals.
- Instead of searching for the rare, outsized winners, investors should find a portfolio that helps them meet their goals over time.
Amazon, Tesla, GameStop: How Can I Grow Wealth?
Let’s face it, some well-advertised stocks have produced some eye-popping returns in recent years. Amazon.com grew approximately 1,700% in the past decade. Tesla took just five years to nearly match that gain.
These figures can give us a sense of easy money—and can cause regret at not plowing every cent to our name into stocks like these years ago so that today we might be able to enjoy that significant growth. Those regrets may push us to look for “the next big thing.”
We think we’ve seen desires like this play out in recent “meme stocks” like GameStop or AMC Entertainment, which have taken shareholders on a rollercoaster ride so far in 2021.
It’s understandable to want a piece of the action. In fact, it seems to be hard-wired into us, with so-called lottery-like stocks (with high potential reward but low probability of success) earning a premium in markets historically. Yet, according to one research paper on the subject, these stocks do not tend to make people wealthy over the long run. Author and researcher Antti Ilmanen writes, 1 “Lottery-like assets appear to be consistently overpriced and deliver poor long-run returns. Small-(cap) growth stocks and IPOs are often seen as the proverbial lottery tickets that fit the bill.” He goes on to cite evidence showing both of those assets—small-cap growth and IPO stocks— tend to underperform over the long run.
What’s the antidote to the lottery mentality? Well, it’s not nearly as interesting—you won’t read nearly as many newspaper headlines about it—but we think doing these things will make it much more likely that you’ll grow your wealth over time.
You’ve probably heard that if you don’t stand for something, you’ll fall for anything. That’s the role we see goals playing for an investor. Instead of being like a cork bobbing in the ocean, pushed by current and wind with no discernible direction, an investor should be like a boat with a destination. Having a destination helps guide decisions along the way and encourages you to keep on track.
Retirement is a common financial goal, and potentially the most important one. According to the Federal Reserve’s most recent Report on the Financial Well-Being of U.S. Households, 25% of Americans have no retirement savings, and about half of those 60 and older report inadequate savings for retirement. We hope that’s not you, but if it is, know that it’s often not too late to firm up retirement savings, and many would-be retirees are choosing reduced work instead to supplement income while keeping active.
Once your retirement picture looks secure, you might consider other financial goals. College for the kids. A second home. More land to farm (or to let others farm for you). Taking that trip of a lifetime. Wedding plans. Or maybe saving and investing in a way that will enable you to leave a nice nest egg for your loved ones and provide you with a safety net for life’s surprises.
Helping You Get There
Every goal can be different. In fact, retirement for one person might look entirely different than for another. Saving for some goals might involve tax benefits, while others won’t. Your financial advisor can help you not only identify which goals you’d like to achieve, but also help you reach them.
That might mean helping you find the right amount to save every month, which accounts to save it in, and which investments to use in each account. Every goal has not only an amount, but timing and importance connected to it. Your advisor can recommend the right portfolio for each goal. And we at Morningstar Investment Management build our suite of offerings with that in mind—serving all of your needs.
Helping You Help Yourself
If you’ve built the boat and have a destination, your advisor can be your co-captain, helping you avoid choppy waters or help you batten down the hatches before the inevitable storm passes through.
Even if you’re retired today, it’s important to keep a long-term mindset when it comes to investing. That’s what will keep you focused on your goals, which in turn is what will help you reach them. And to us, reaching your financial goals patiently and over the long run seems a lot more achievable and lot less harrowing than trying to find a get-rich-quick lottery stock. We and your advisor are here to help along the way, and one of the most powerful things you can do is to stay the course.
1 Ilmanen, A. 2012. “Do Financial Markets Reward Buying or Selling Insurance and Lottery Tickets?” Financial Analysts Journal, Vol. 68, No. 5, P. 26.
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