Some think the path to building family wealth is discovering secret, unknown investment treasures in the global marketplace.
Numerous articles disclose portfolio managers’ “secret stock.” Others tout “under-the-radar investments” that Wall Street doesn’t want you to know about. The articles suggest that they will help you discover the next hot stock and act early enough to hit the jackpot and strike it big.
Apparently, as this thinking goes, wealth lies in the discovery of hidden treasure. Have you seen someone with a metal detector walking the beach after a busy, hot day? It’s just a matter of finding the undiscovered coins and jewelry left behind by people who didn’t recognize the treasures below their feet.
The popularity of stories about unknown bargains and undiscovered stocks is understandable. We all enjoy reading stories of financial success. But the search for hidden treasure is not investing. It is speculation and gambling. Most people do not benefit from speculation. Rather, the gradual growth of compounding returns while avoiding speculation is the more likely way to build real wealth.
Diversifying your 401(k) and investment portfolio into a balanced, non-speculative, diversified portfolio that earns an average annual return of perhaps 7% over the long term may not sound exciting. But let me help put this into perspective for you. History tells us that Native Americans sold Manhattan Island roughly 375 years ago for $24. Today, Manhattan Island is valued around $3.3 trillion. That comes out to a 7% annual compounded return.
Compound return over time has been called the eighth wonder of the world. A successful investment strategy is not likely to result from a search for hidden treasure. It is more likely to result from balanced diversification to build your family wealth over time. Don’t speculate. Diversify.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.