Early and Often: What The Richest People Know About Wealth Creation
by Jay Handy, CEO of Walnut Capital Management and SignalPoint Asset Management
Of the 320 families on the Forbes 400 list in 2011, (such as the Waltons of Walmart and the Johnsons of Fidelity), 85% owned a business.
Of the number of families who had remained on the list since its creation in 1982, 97% of them achieved their wealth via a family business.
As I started to think about this more, I realized that this phenomenon isn’t exclusive to the Forbes 400 list, it plays out on a smaller scale in towns and cities across America.
Think of the 10 wealthiest people in any community, and chances are they built their wealth by running a company. (Or they inherited wealth that was sourced from operating a company.) It could be the local car dealership or a chain of dry cleaners or a software development company. What matters is that growing a business delivers big compounded financial growth.
Not everyone is suited — or has a desire — to take risks with capital, hire and fire employees, buy equipment, lease warehouses, or negotiate loans larger than some developing nation’s GDP. So what can the non-business owners learn from the statistics?
A lot of investing is simply math. Smart, wealthy families invest early and often in their business.
Why early? It’s about the law of compounding returns. In a business, that means pouring everything you have into a startup so that it will reap enormous gains over the coming years. In the stock market, it looks somewhat similar.
One hopes to, and often does, double their money every seven years when the market returns its average of just over 10% over time. (Operative words: over time)
If you miss your initial cycle of doubling, that will forever stump your long-term result.
Why often? This takes advantage of all market prices, especially when things are in a rough patch and prices are lower. With the discipline of regular slugs of cash going into your portfolio, you will appear to be a genius and smartest one in your group long after the market has recovered, and those fund prices are much higher from where you dutifully purchased.
You may never be on the Forbes list (though if you are, congratulations!), yet learning good habits from those who are can help you grow your own wealth.