My approach toward wealth changed in 1992 when I went to a Vanderbilt University alumni meeting and heard William Spitz, the college’s treasurer, give a talk about his book, “Get Rich Slowly: Building Your Financial Future Through Common Sense.”
In the book, Spitz sums up his philosophy in 10 principles:
2. It is not necessary to earn extraordinary rates of return to accumulate a sizable net worth. Earning consistent, reasonable returns while avoiding losses should be the focus.
3. Structure your program to understand the risks involved and have faith in your program to ride out the tough times without making hasty or costly decisions.
4. Diversification is crucial. Spread your risk.
5. Index funds will usually do as well, or better, than investment advisers or managed mutual funds.
6. Make decisions based on economic performance and not on tax avoidance.
7. Have the same program for asset allocation, no matter how much or how little you are investing. A person with $5 million to invest would split it into multiple types of investments; so should the person with $5,000.
8. Every investor is his or her own worst enemy. No one is immune from swings in emotion and from following the herd. Structure your finances to avoid the availability of sudden decisions.
9. Minimize costs whenever possible.
10. Too much trading and moving money is expensive and counterproductive. To quote Spitz, “The primary beneficiary of a high level of trading is your broker.” Set up your portfolio carefully, review it annually, stick with the plan and don’t panic.
“Get Rich Slowly: Building Your Financial Future Through Common Sense” is aimed at academia and is not an easy read, but for me it was an epiphany. I had similar thoughts about how to make money, but Spitz summed them up in one book. It has been the cornerstone for all my philosophies since then.
Spitz gave his advice 16 years before the Wall Street crash in 2008. People who had their money allocated as Spitz suggested — among a variety of stocks, bonds, mutual funds, real estate and annuities — did much better in 2008 than people who had put their eggs in one basket.
A lot of people, including many at Wall Street banks, thought real estate could never go down. They put all their money in the real estate market and got burned.
When I worked as a Series 7 registered representative (often referred to as a stockbroker), I followed the lessons of the “Get Rich Slowly” book religiously. I had a large clientele of doctors, lawyers and other well-educated professionals, along with injury victims and the occasional lottery winner.
I had my clients allocate their money into several types of investments and did my best to keep them from panicking when one class of investments did poorly. I reminded them it takes time to “get rich slowly.”
Over the years, I kept noticing one thing. People who had easy access to cash were the ones most likely to fall off the “get rich slowly” bandwagon. They would have “emergencies,” such as buying a new car or a houseboat, or taking their friends on a cruise. Sooner or later, the money would be gone, well before they were able to “get rich slowly.”
In the meantime, I had a parallel business that provided structured settlement annuities to injury victims. Structured settlements are only offered to injury victims and are tax-free. Thus, they are an attractive choice compared to taxable alternatives.