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IN THEIR NEW BOOK The Missing Billionaires, Victor Haghani and James White make an interesting argument. Looking at the number of millionaires in the U.S. in 1900 and doing some math, they estimate that there should be many more billionaires today—thousands more, in fact—than there are. The question Haghani and White ask: Where did they go? Or, more specifically, where did their wealth go?
The authors consider possible explanations, including taxes—especially estate taxes—and the 1929 crash. But even after adjusting for those factors, they calculate that there should still be many more people today with a lot more wealth. In the end, they settle on two explanations for these “missing billionaires”: excessive spending and poor investment decisions.
To illustrate their observation about spending, they point to the Vanderbilts. When he died in 1877, Cornelius “Commodore” Vanderbilt was by far the wealthiest American. But just 50 years after his death, the family’s wealth was essentially gone, thanks to spending that exceeded even their vast means. One of Cornelius’s grandsons built the 125,000-square-foot Breakers mansion in Newport. Another commissioned Biltmore in North Carolina, which is still the largest home in America. And they endowed Vanderbilt University.
The second factor Haghani and White point to is on the investment side. Many of these families failed to effectively diversify, owning too much of a single stock. In many cases, these were shares in family businesses, which they held on to for emotional reasons.
While the Vanderbilts are an extreme example, their experience illustrates the importance of planning, even for wealthy families. When making a financial plan, I recommend a three-part approach.
1. Math. There’s no shortage of strategies for building a financial plan, from Monte Carlo analysis to the so-called 4% rule. But whichever approach you choose, there are five principles that, in my opinion, are universal:
2. Mindset. Back in 2004, the author Kurt Vonnegut was speaking to a group of college students. He told a story about how he liked to spend his time: When he needed an envelope, he said, he liked to walk down to the stationery store and purchase a single envelope. Seeing him do this, his wife suggested that he instead buy a box of 100 and keep them in his office. But Vonnegut objected. He enjoyed the walk and liked chatting with people along the way.
This helps illustrate an important truism about personal finance: The numbers are just part of the picture. Vonnegut would have saved both time and money by ordering a box of envelopes online. But for him, it wasn’t about the numbers. It was about what gave him enjoyment.
In other words, mindset is a valid component of any financial plan. While there isn’t necessarily a formula you can apply, there are questions you can ask to help inform the structure of your plan. These are some examples:
There is, of course, no right or wrong answer to any of these questions.
3. Circumstances. My doctor and his twin brother are partners in their medical practice. But even when two people appear almost identical—with the same background, the same profession and the same income—there will be differences. Though these differences are often harder to quantify, they’re nonetheless an important component of any financial plan. These are some questions you might consider:
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and on Threads, and check out his earlier articles.
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While it may be hindsight, I have found the KISS (keep it simple stupid) principle works best in our younger years investing. Index funds, SP 500 etc.
Now I am retired I find the decisions I have to make about investing and withdrawals far more complex. We have fortunately done well and have enough money to live on, despite we have no pensions.
So now it is hard to decide how much to spend on ourselves, what to gift to our kids versus charity and what we should plan to leave them. They have good jobs and a house so really dont need money per say.
The decisions about timing and delaying withdrawals until RMDs kick in are pretty complex, and I find most “ financial planners” cost too much for the advice you get.
Fortunately, with retirement I have a lot. ore free time to figure this out.
Did Victor Haghani mention in the book about blowing up the hedge fund you are a principal of as a way not to become a billionaire? If you read the book, When Genius Failed: The Rise and Fall of Long Term Capital Management, by Roger Lowenstein, you can learn all about how Haghani was involved in one of the great blowups in Wall Street history. A few months after the blowup Buffett remarked, regarding the principals at LTCM, that they, “Risked what they did have and did need (their great wealth and fame) for what they didn’t have and didn’t need (even more wealth and more fame).”
I look forward every week to your articles. Sometimes there are ideas I’ve not thought of and other articles are quality reminders. Usually they are both. Thank you Adam
Adam–Always interesting, thought provoking articles.
I greatly look forward to your articles, Adam, because you address these issues with such clarity. Yet in enlightening me you also help clear my mind of my tendency to overemphasize financial issues.
Here’s what I mean: I’m a regular viewer of the Henry Louis Gates series Finding Your Roots, which last week tracked the family histories of two well-known actors whose forebears emerged from the Pale of Settlement, as did mine. Jews were persecuted, brutalized and expelled at the whim of the government (as lightly depicted in Fiddler on the Roof) and usually arrived in the US or other destinations as refugees, dead broke with virtually zero resources but lots of determination. Within a generation, usually, their families were well-established. I can imagine my great-grandfather, who landed in Chicago around 1894, comparing my current situation with his and ridiculing my retirement concerns. (Family tradition says he did a lot of ridiculing anyway.)
So I would add one question to your Mindset list: When you are on your deathbed, what will you regret most about your life? Will you regret the time you have spent planning, thinking and worry about money — about income streams and fund fees and tax rates? What will give you the greatest satisfaction about your life when you look back in your final moments?
There’s no right or wrong answer to that one, either.
I found this quote from another great source of inspiration (at least to me) …
In 1875 an op-ed said socialites “devote themselves to pleasure regardless of expense.” A Vanderbilt heir responded that actually they “devote themselves to expense regardless of pleasure.”
Adam, thanks for an excellent article. This is solid advice for those considering retirement, and even in retirement. My experience, and what I’ve observed, is that your math, mindset and circumstances can change as you approach retirement, in early retirement, and beyond. I know many couples that have chosen retirement locations based on kids and grandkids. You are correct that retirement may not be a straight line, and you may choose to alter the direction as you go. Having a solid plan allows you to choose what direction it will take.
Everything points to the need for a steady income stream and income replacement in retirement at a level i have sworn not to mention again. 🤑
Personally I like the idea of 100% income replacement in retirement. What do you think Mr.Quinn? 😁
Dick, thanks for not mentioning it.