What Is the Real Value of Money? — Investment Choices

Money for money’s sake is a pretty hollow and meaningless pursuit.

To really appreciate and respect (as opposed to love) money, there has to be a deeper level of meaning.

Find that meaning and you’ll become a more considered and thoughtful investor.

The reason why so many Lotto winners squander their instant fortunes is they have no higher motive in life than instant gratification. When the money is gone, often their lives are poorer for having been temporarily wealthy.

To me, money is a resource to improve my family’s quality of life and the lives of those not so well off.

Therefore, when considering an investment opportunity, one of my primary considerations is: will this take me closer to or away from my goal?

If the opportunity does offer potential to improve our financial position, then you undertake an assessment on the risk versus reward trade-off and what percentage of capital you are prepared to allocate to the prospective opportunity.

In my experience, those who have lost most or all of their wealth are blinded by dollar signs.

When your sole purpose is money, it’s easy to lose sight of what really matters in this world.

If someone said to me ‘You can have $1 billion, but it comes with the cost of having a damaged-beyond-repair relationship with your children.’ I would say ‘Keep your money.’

While money is important, there are other things in life far more important to me.

The ‘everything bubble’ has delivered a windfall for many investors in shares, property, and cryptos.

History tells us this massive bubble is destined to burst…it’s just a matter of when. Tomorrow, next month, or next year?

For those who’ve seen a significant improvement in their financial position, they need to be asking themselves do I want this to be permanent or temporary?

If you want it to be more permanent, then this means taking profits, paying the taxes, sitting in cash, and watching the action from the sidelines.

None of the above sounds particularly appealing.

But losing maybe 50, 60, or 70% of your capital is far less appealing…but, as is often the case, you won’t realise that until after it’s happened. By then it’s too late.

When wealth means far more than numbers on a balance sheet, your decision-making is influenced far less by the emotions of greed and FOMO.

The real value of money is investing in our children

One of the side effects of the ‘everything bubble’ has been a growing increase in income inequality.

Studying the social and economic effects of this phenomenon makes for an interesting (and motivating) read.

In October 2016, University of Michigan professors Fabian Pfeffer and Robert Schoeni published a research paper titled ‘How Wealth Inequality Shapes Our Future’.

Life is all about the odds…which is why this statement from the research resonated with me:

The odds of becoming part of the wealthiest 20 percent of Americans are more than 700 percent greater if your parents were in the top 20 percent instead of the bottom.

Staying wealthy — not falling out of the top 20% when the bubble burst — significantly increases the odds for our children’s financial future.

Retirees (and near retirees) who are knowingly or unknowingly embarking on the strategy of ‘Spending Kids’ Inheritance’ (via lifestyle options, lifetime annuities, reverse mortgages, and/or out of necessity to make ends meet) are at risk of spending themselves into the bottom 50% of household wealth.

What are the odds of their children and grandchildren repeating the same cycle? Based on the research…reasonably high.

If you needed additional incentive to permanently retain your wealth, then giving your children a 700% greater chance of being part of the top 20% should be a pretty powerful motivator.

Retained wealth means you can provide your children and/or grandchildren with better education options (emphasis added)…

Human capital, and education in particular, translates into more favorable outcomes in the labor market, higher income, greater wealth, and a longer life. One more year of schooling leads to roughly 10 percent higher earnings each year (Card 1999). The wealth of college graduates is three times higher than that of high school graduates (Bricker et al.2015). Life expectancy is six years higher for college graduates than for high school graduates (Rostron, Boies, and Arias 2010) and this gap is increasing (Montez and Zajacova 2013; Olshansky et al.2012).

Wealth allows parents to purchase a variety of resources that enhance human capital development: high-quality day care, books and learning tools at home, enrichment activities, and access to better elementary and secondary schools (Duncan and Murnane 2011).

The evidence is perhaps most alarming at the postsecondary level. College graduation is strongly related to parental wealth (Conley 2001). The college graduation rates of young adults whose parents are in the top 20 percent of the wealth distribution are more than 40 percentage points higher than among those whose parents are in the bottom 20 percent, and this gap has grown substantially across recent cohorts.

The ability to access quality education tends to translate into opportunities to access higher paid employment, more wealth, and increased life expectancy. Who doesn’t want that outcome for their children?

This, for me, is what wealth is all about. Having the capital to provide access to opportunities that improve our children’s odds of success in life. Making them richer in knowledge, experiences, and social skills.

Do all children who have access to better education opportunities succeed and those that don’t fail?

No.

But we are playing the odds game, so having access to a quality education — from kindergarten to university — increases the odds in our favour.

The researchers also found informal education is just as important (emphasis added)…

The quantity and quality of formal education is important, but formal education is just one form of human capital. Some individuals are better than others at accumulating assets thanks to better knowledge of and skills in managing their finances (Lusardi, Michaud, and Mitchell 2013). Preferences for risk-taking and saving versus spending may also matter. Parents who have these valuable skills and qualities likely pass them on to their children (Dohmen et al 2012), although evidence suggests that the intergenerational transmission of risk preferences per se does not account for much of the intergenerational correlation in wealth (Charles and Hurst 2013).

The knowledge learned from being a prudent and considered steward of capital can provide your children with an invaluable foundation upon which they too can build their own financial position.

And you can teach them about the true value of money.

Investing in my family is what’s helped me stay grounded in my c.

Regards,

Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.


Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.


The Rum Rebellion