The Millionaire Next Door Redux

My colleague, Walter Kirchberger, does a lot of world travel and recently brought back with him not a tee shirt or other souvenir, but an article he had read on the ship titled, “The millionaires next door.”  It was an Associated Press piece by Liz Weston.

Many years ago, a book was written of the same title, and it chronicled the formation of a good number of the millionaires in the US.  The common denominator?  Most millionaires became that way not because they earned a lot of money, but because they SAVED.  So, the article by Weston was a good rehashing of this and the other factors that led to the creation of wealth and we think it is worth re-reminding our readers of these traits that aid in achieving financial independence.

“One House, One Spouse – this one is self-explanatory.

“Take Risks, But Don’t Gamble” – this comes up often in conversations with friends and clients.  They heard about a stock from an acquaintance, an invention that will change the world and wish to “invest.”  There is so much more that goes into the analysis of a common stock, that if one merely considers anecdotal evidence, it is gambling.  Instead, research, analysis, diversification and emotional fortitude to hang on during volatile times are the keys to successful investing.  This is not gambling.

“Teach Your Children Well” – often, our blogs and Sigma Summaries are written for educational content, and we hope that they are passed on to younger friends and family members.  Sometimes, worn advice seems to lose its impact, so we try to repeat often so lessons get learned.  The best education is learning from the mistakes of others. Of course, formal education (college degree) often is a determinant of future earnings.

“Don’t DIY Your Money” – ok, this is quite self serving.  But, doctors do not treat themselves for serious illnesses, nor do lawyers represent themselves in litigation.  There is a certain degree of expertise that is required for investing, but common sense is also an important ingredient.  Importantly, an emotional detachment is ESSENTIAL.

“Big Tax Bill Means You’re Ahead” – we often say, do not let the tax tail wag the dog.  While we make every attempt to offset realized capital gains with losses, we would not want to deliberately create losses (lose money) just to reduce a tax bill.  Do what is economically correct – do not just focus on the tax issue.

Hopefully, these tidbits can be tucked away and reviewed on occasion just as a reminder of the factors that enable the creation of wealth.

All comments and suggestions are welcome.

Bob Bilkie, CFA®