Look up the term middle class in the dictionary, and somewhere in there, I’m sure you’ll find the word average.
By far the most prominent economic class, the middle class represents everything average. Its members have average jobs paying roughly $79,900 a year, an average home valued at around $269,039, take an average of 15 days of vacation a year, have an average of 1.9 children, and have a 401(k) balance of around $106,478.
Their 401(k) balances should be the most alarming for the middle class about their average status. According to a survey of 401(k) participants by Schwab Retirement Plan Services in 2019, respondents believed that they need $1.7 million, on average, to retire. Many confessed that they were not prepared, and the average $106,478 balance validates this lack of preparation.
When the middle class looks at the wealthy, they are envious of the time they seem to have and wish they had – the time to visit their family, serve their communities, and visit exotic locales all on their own schedules.
Ironically, the middle class would envy the rich for their time because it’s the way the wealthy treat time when it comes to investing that sets them apart from the middle class.
Patience is the determining factor between wealthy investors and the middle class.
The middle class are not patient investors. Part of the fault lies with Wall Street, which has set up the middle class to fail. The middle class is constantly inundated with mainstream investments – at work with 401(k)s, on the internet and social media with meme stocks, among family and friends with stocks and bonds, and so on.
Wall Street liquidity enables investor impatience. Now, with commission-free trading through Robinhood, it has never been easier, more convenient, or cost-effective to trade stocks. The result has been investors jumping in and out of stocks at maddening rates – driven by internet buzz, social media hype, and cable news talking points.
Patience is not a virtue of investing with the middle class. They don’t think long-term. It’s all about timing – getting in and out at the right time to maximize returns and minimize losses. And it’s this timing-centric investment philosophy that explains the middle class’ short-term investment approach.
Constantly pressured to go with the herd, the middle class will never hold onto their assets long-term.
So, how do timing and flash judgment investing work out for the middle class? According to J.P. Morgan Asset Management, the average retail investor loses half a percent a year from stocks when factoring in inflation.
Wealthy investors are patient. They believe that patience now will pay off later. Unlike the middle class, the wealthy are not always looking for the next big thing in trading, and they’re not constantly checking their phones, computer monitors, or TV screens to monitor market movements or the latest buzz. One of their greatest fears is to be left out. That fear explains why investors are piling into the crypto market in addition to stocks right now.
The wealthy don’t care what the crowds are doing. That’s why they’re not interested in short-term market movements. They stick to assets that historically have followed a reliable, upward trajectory. They may hit bumps here and there, but these assets can be counted on to iron out over time to continue trending upwards. That’s why the wealthy invest long-term. Investing long-term relieves them of short-term worries.
When the wealthy invest, they invest in something that has worked for them or someone else time and time again. Why mess with a winning formula? They’re patient and know that as long as they stick with their assets long-term, these assets will provide above-market returns without volatility or headaches.
So what kind of assets do the wealthy rely on time and again to build wealth?
Commercial real estate and private company ownership (private equity) have reliably and consistently provided investors with cash flow, appreciation, and tax benefits over time that have given the wealthy a decided advantage over time when compared to their short-sighted middle-class counterparts.
The wealthy aren’t easily swayed by what others are doing in the market. Are you?
Take a look at your portfolio and look at your trades for the past 6, 12, 24 months:
- Is there a pattern?
- Did you find yourself jumping in and out of stock positions frequently?
- Were your investment decisions guided by what you saw and heard on social media and cable news?
- Did you see patience or impatience in your investing habits?
Ask yourself where you get your investment advice and whether that advice is putting you any closer to living the life you want to live – the lives of the wealthy who are unbothered from a job.
Patience separates the wealthy from the middle class.
If your investment patterns mirror the average, impatient retail investor who hangs on every word of talking heads on the internet and TV, maybe it’s time to consider a different route – a route requiring more patience, but one that will get you to your goal.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.