What are your motives for investing?
When I ask friends and acquaintances what their motives are for investing, some of the answers may surprise you.
- “I don’t know. I just feel like it’s the thing to do.”
- “I just want to have enough for retirement.”
- “I want to hit it big. Go big or go home right?”
These answers surprise me and then again, they don’t. These answers explain a lot about Main Street’s investing habits.
Let’s look at these individual answers and evaluate what kind of investors would answer this way their investing habits:
“I don’t know. I just feel like it’s the thing to do.”
This type of investor goes with the flow. They do what everyone else is doing, which is investing through their 401(k)’s at work or working with a financial advisor. There’s no real planning involved with these investors and if the Baby Boomer generation is any indication, going with the flow is not a great investment motive.
In a recent CNBC survey, more than 60% don’t feel they have enough for retirement. More than 23% of these respondents plan on work beyond retirement age.
Here’s the backup plan for some of those surveyed:
- Downsize, live on Social Security alone — 58%
- Return to work — 37%
- Ask children for assistance — 6%
Maybe these Baby Boomers don’t have a lot of savings for retirement because the only ones who got rich from their 401(k)’s and financial advice were the mutual fund managers and financial advisors who pocketed exorbitant fees without delivering for their investors.
According to its 2019 year-end report, SPIVA (S&P Indices Vs. Active) who keeps a scorecard of the performance of professionally managed funds vs. the S&P 500, over the past 15 years, 95% of professional funds have failed to beat the S&P 500.
Not having a focused motive and investing just to invest can be devastating for your retirement plan.
“I just want to have enough for retirement.”
This is a conservative investor who typically invests in fixed-income assets that in the long run will not meet their needs.
Here are the average returns of common fixed-income products:
Product Rate of Return
Treasuries (10-year): .91%
Corporate Bond (AAA): 2.35%
Best Multi-Year Guaranteed
Annuity Rate 2.45%
Highest Rate: Navy FCU .70%
CDs (5-Year) .42%
Savings (Best Rate: Citibank) .70%
Here’s the big problem with these products: INFLATION
The average inflation rate over the past 20 years was 3.22%. At this inflation rate, you will lose money long-term with any of these products.
The false security of fixed-income bank and insurance products have wrecked many retirement plans.
“I want to hit it big. Go big or go home right?”
This is your average retail investor and day trader who constantly tries to beat the market by anticipating upswings and downturns in stock prices to profit. They’re looking to hit it big with the next Amazon or Apple.
What they’re doing is speculating. If hedge funds and mutual funds with all their computer algorithms and analysts on their payroll can’t beat the market, what chance does the average investor have?
According to Forbes.com the 30-year annualized rate or return by retail investors is just 1.9%. When factoring inflation, timing the market is a terrible investment strategy. Wanting to hit it big is not a good investment motive.
So, what are the right motives?
If you want to see what the motives are of successful investors, look at the investing habits of Ivy League endowments like those of Yale and Harvard who have averaged returns of 11.5% in the past 20 years. Their investment motives are different from average investors because they’re not just investing for the current generation, they’re investing for future generations as well.
Here are their two main motives:
- To generate enough cash flow to meet current operating expenses.
- To grow capital for future generations.
Investing for income and to build multi-generational wealth is the reason these endowments prefer cash-flowing alternatives like private equity, commercial real assets, natural resources, and others. Only 3% of their portfolios are allocated to Wall Street.
Cash flowing alternative assets are ideal for meeting current financial needs while building multi-generational wealth because part of the cash flow can be reinvested to generate multiple streams of recession-resistant income due to non-correlation to Wall Street.
What are your investment motives? Have you considered these investment motives?
- Growth / Appreciation.
- Generate Passive Income.
- Tax Benefits.
- Diversify Beyond Wall Street.
- Build Generational Wealth.
- Partner with Experts.
- Diversification across geographic locations, asset class, security type, and compensation structure.
Investing the right way takes investing for the right reasons. To be ready for retirement, invest with an eye not only on your lifetime, but on future generations.
Investing with a long view will lead you away from the wrong speculative assets or underwhelming fixed-income assets and towards cash flowing alternative assets ideal for current cash flow and for building multi-generational wealth.
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.