5 Brutal Truths About Building Wealth
Written by
Cindy Lamothe
Edited by
Jenna Klaverweiden
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Building wealth isn’t all sunshine and Instagram-worthy moments. While everyone loves talking about side hustles, passive income and shiny financial freedom, the truth is a bit grittier. There are no shortcuts, no magic formulas and, yes, some tough lessons along the way.
Here are some brutal truths about building wealth that will help you in the long run.
1. It’s a Long, Slow Game
“Building wealth is unfortunately about playing the long, slow game,” explained Brett Horowitz, principal and wealth manager at Evensky & Katz / Foldes Financial Wealth Management.
He said most people know someone who struck it rich by buying Apple stock 30 years ago or Nvidia stock 10 years ago. “The truth is that those investors had to sustain long time periods where they either lost money, or barely made money,” he said.
Both companies were mostly irrelevant at some point and investors who held those stocks were extremely fortunate, or proficient, but mostly fortunate, to have made so much money holding those stocks. “Picking individual stocks is often a recipe for failure and the best way to make money is through hard earned saving,” he said.
2. Trading Is Hazardous to Your Wealth
While some may view trading as a way to build wealth, it may not be a good option. According to Horowitz, the more often you trade, the worse you do. “Or as we say ‘your portfolio is like a bar of soap, the more you play with it, the smaller it gets,'” he said.
He noted that overconfidence can explain high trading levels and the resulting poor performance of individual investors. “Our central message is that trading is hazardous to your wealth,” he said.
Horowitz explained that trading typically involves fees and taxes, so the more you trade, the more these costs drag down the portfolio’s return.
3. Your Fear Is Costing You Big
“If you look back to some of the best times to invest money, it was right in the midst of extraordinary volatility,” said Horowitz. In other words, often the best times to invest are when the public is scared.
“Imagine buying a house or two in 2009, buying stocks in the depths of COVID, or more recently, buying bitcoin when it dropped from 60,000 to 15,000,” he said.
He explained that he is not recommending investors take maximum risk and go all-in, but having a balanced portfolio with cash on hand for emergencies means that when there are great deals being offered for financial assets, a smart investor can take advantage of them.
4. Thinking Illogically — or Too Emotionally — Drains Wealth
We sometimes think illogically, Horowitz noted. For example, we have no problem spending big money on a new purse or football tickets for the big game, but when the cable bill rises by $5, we can’t complain fast enough.
“We sometimes think emotionally,” he said. And that can hurt wealth.
5. Most People Are Bad When It Comes to Finances
According to Horowitz, the most brutal truth is that most people are very bad when it comes to their finances. “They didn’t study it in school, they are usually paying attention on a part-time basis over the weekend or at night after working all week, and they are not that interested in all the minutiae,” he said.
Investing, however, is one of the only areas where more knowledge does not lead to better results.
“Because while we know what is happening today, and why, it tells us nothing about what is to happen tomorrow,” he said. “Individuals should leave financial decisions to the professionals who are well versed on new legislation, financial strategies and coaching.”
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