Episode 524 – Generational Wealth

Welcome to the Your Life Your Wealth podcast with John Walker and Jason O’Meara, helping you find clarity and comfort for your life and wealth.

John Walker:
Hey, welcome to the Your Life Your Wealth podcast. I’m John Walker, Regional Vice President at Mercer Advisors. Joined as always by my good friend and colleague, CERTIFIED FINANICAL PLANNER™ and Market Leader here at Mercer Advisors, Mr. Jason O’Meara. Jay, how are we doing?

Jason O’Meara:
Doing great, John.

John Walker:
I thought today you might want to join me in a conversation around some of the strategies and mindsets we’ve observed over, you know, many, many years of doing this and helping countless families. And how there are some things that separate families that are able to build lasting wealth from those who maybe don’t feel as confident about how long their money is gonna last, you know, there’s a lot of different ways to create wealth in this country.

There are folks who inherit family money and have been wealthy their whole lives. There are folks who build it on their own, right? Um, certainly in today’s long-running bull market, we’ve had some folks who’ve had some really lucky stock picks and have created generational wealth that way, right? But if we take a little broader view of it, if we take a step back and say, are there some things that we’ve observed that kind of are good indicators of the habits that help create generational wealth — and I think there are, Jason.

I think one of the things that we’ve seen is if you focus only on spending or growing the portfolio, you miss some opportunities, right? And one of the main ones is that many of the families we’ve observed, they prioritize ownership over consumption, right? They look at things as assets to build wealth and try to avoid liabilities that drain it.

Jason O’Meara:
Right. And yeah, one — like you said — one of the things we see is they get $100,000 for whatever reason, right? And what do they do with it? Some people go out and spend it. They think of all the things they can spend the money on, right? Other people go out and buy things that generate income. So maybe by dividend-bearing stocks or a diversified portfolio, something that they’re able to draw an income off of and not reduce the principal. Therefore, at the end of the year or end of 2 years or 3 years, they still have that $100,000 — maybe plus, it’s probably grown a bit since then, right?

Whereas the person that goes out and just spends the money on things — at the end of it, they don’t have anything. It’s that kind of shirt sleeves to shirt sleeves mentality, right? You know, in a couple of generations, people who win the lottery tend to run out of money because instead of buying something that was going to make their lives better, right, more secure, they spent their money on something that went down in value the moment they got it.

John Walker:
Yeah, I mean, I think often in terms of homes and cars, Jason — I know you’re a big car guy — you know, in general, OK, we’re speaking largely in generalities here, right? These are just things that we’ve observed, but homes, for example, a house, property, typically over periods of time usually rises in value, right? It’s going to fluctuate. There are market conditions, etc., but generally speaking, if you buy a home, in the next 10, 20, 30 years, it’ll have held or hopefully increased its value a little bit.

On the other hand, that car you buy — everybody knows this, right? The second you drive it off the lot, it’s worth less than what you paid for it, right? And so, you need a car to get around and to get to work and it has purpose. But recognizing that it is a depreciating asset, and characterizing it as such and then treating it as such as a spend, is really kind of how I equate this, right? So are you investing in something that’s going to grow in value or are you investing in something that’s going to potentially lose value the second you start to own it, right?

And so that difference between consumption or purchasing for long-term ownership — that’s a good indicator of sometimes of creating longer-term wealth. You mentioned this just a moment ago, Jason — one of the other things that we observe is many of these families see the value in letting their money work for them, right? Once you’ve accumulated some wealth, we all kind of have seen this hopefully in our retirement accounts in the power of compound interest, right — the ability to let your resources grow themselves through earning interest, reinvesting it, reinvesting your growth and not taking it. That simple formula, right? It just really requires time and a consistent approach, a consistent — I would argue disciplined — approach.

Jason O’Meara:
Right, exactly. And this ties into — like you said — it ties into the first thing we discussed. It’s how do you let your money work for you. The idea is your money should be earning you money while you sleep, right? That’s the whole premise around investing and planning for the future, and like we’ve talked about before on this podcast, how do you ensure that the money you have today becomes more later? And one of the best ways to do that is through investing, right? It’s the only way to beat inflation, or statistically the only way to beat inflation.

But you need to make sure you’re striking that nice equilibrium between living today and saving for tomorrow. Um, so we’re not saying, hey, take all your money, throw it all in investments, never spend a penny of it. That’s not how life works. But the reality of it is, make sure that you’re paying yourself first, right? Make sure that you’re saving your money, the amount of money you need to hit your goals that works within your financial plan. And then you can spend your money afterwards.

But the people who have been the most successful have paid themselves first and then bought the things they want to buy, right? Once you hit your savings goal, you can spend your money after that — whatever money is left after that. Um, a good quote I heard: the best way to become a millionaire is to not spend a million dollars. And when you think of it that way, you’re like, oh my God, that’s true. The best way to become a millionaire is to not spend a million dollars, right?

So the reality of it is, those who have been the most successful have found ways to either prioritize savings, or even better, systematize their savings, right? Take that decision out of your hands — have it go automatically into whatever investment account that you’re using: 401(k), IRA, brokerage account, whatever that is. Have your money going automatically. Take that decision out of your hands. We make enough decisions every day. We don’t need to add one more.

John Walker:
And it goes hand in glove with kind of the next observation I wanted to talk about, Jason, which is playing the long game, right? It’s not easy to delay gratification, right? It’s not easy to trade short-term rewards for something bigger in the future. But the ability to do that, to fight that psychological battle, to — as you said — not spend a million dollars, helps you become a millionaire, right?

Generational wealth creation kind of works the same way, right? You can’t bank on luck of picking the right stock or timing the market. You really need to rely on patience, right? The way wealth compounds is through time, and money needs time to grow, right? Whether it’s through a diversified investment portfolio, whether you start your own business — you know, most business owners aren’t making money hand over fist in year one, right? It takes time to build a brand and to build a client base and to build ongoing revenue streams. Real estate, as we talked about earlier, takes time typically to increase in value — usually over decades, right?

So the idea of these get-rich-quick schemes or shortcuts, they’re usually just a waste of money and your own time, right? So taking the opportunity to not chase fast returns and to have a plan — a plan that is built for consistency and to allow that plan to do the heavy lifting, right? I think that’s really something that we’ve seen. Many of the families we meet have done the yeoman’s work of consistent saving, of letting their portfolios grow over several decades, and not chasing shiny objects, right?

Jason O’Meara:
Right. Every time you turn around there’s another thing — hey, if you do this, you can make $100,000 quickly. Unfortunately, that’s what the lottery draws that attention, right? Like, hey, you can put $3 into this machine here and win a million dollars, win $500 million, you know. But the reality of it is most people who play the lottery wind up just donating to the lottery, right? The statistics are very, very not in your favor. I don’t know a better way to word that, right? They’re not in your favor at all.

So you know, in the past I’ve taken jobs that I thought were going to be a shortcut, and what I always found was that just the tried and true, slow, methodical way to generate wealth is the one that works, right — is the one that ultimately works. And the problem is it’s not fun, it’s not flashy, it’s not exciting, so people don’t talk about it. Everyone talks about, oh, I put a quarter into a machine, pulled the lever, and won $1,200 — and it’s like, OK, great. How many times did you put a quarter in that machine before that? And most of the time you’re underwater. So it comes down to just, again, slow and methodical — slow and steady wins the race in this case here.

John Walker:
Yeah, and I think it’s even more challenging for folks today with social media and other things, right? A lot of these people don’t post on Instagram their losses, right? Or the businesses that they tried to create that failed, or the stocks they picked that went down, right? It’s all built and designed to put in our face all of the successes that people are having without sharing all of the trade-offs or maybe some of the things that didn’t work as well.

And so I think we should be clear — it’s not easy to do this. It takes discipline and it takes often partnership, right? This is where working with a planning group that can show you a long-term vision and how your outcomes happen over long periods of time, and that you don’t have to rush, you don’t have to chase returns — I mean, it’s all fun and games. I love — I play poker with a bunch of buddies, and when the Powerball or Mega Millions hits hundreds of millions, we all throw in a few bucks and we build in our minds how we’re going to spend that money, right? But we know that that’s not our long-term plan for success.

And so, you know, it’s important to understand that you do have to play the long game if you really, really want to make this money last for decades, right? Or for multiple generations.

There are some things that we observed too. Many of the families that we work with are really, really inquisitive, and they spend a lot of time increasing their financial literacy and ensuring that that information passes down through generations. And I think, you know, we’ve done programs in the past about this — the gap between financial knowledge and certain demographics. This is one thing that certainly enhances the creation of generational wealth, which is that many families that have grown their wealth really work to stay informed and make sure that the lessons they’ve learned are passed down generationally, right? And that makes a huge difference.

Some basics of investing really never go out of style, never really change, right? We just talked about not chasing fads. But investing early and often, diversifying your portfolio, playing the long game in the market, not trying to time the market — but things do shift. You know, tax laws change, new investment vehicles become available that might be advantageous to you. Whether you know it yourself or work with a team like ours who can bring that institutional knowledge and those updates to you, making sure that you’re up to speed on all the things that you can take advantage of is really, really important.

Jason O’Meara:
Yeah, exactly. And we see it all the time where you’ll meet — I’ll meet with a family and they’ll say, hey, can we bring my son in? Because my son’s just graduating college and it’s time for them to get started too. I want you to help them, you know, talk about what’s important, what they need to be focused on, how they should be investing their first 401(k) — those kind of things. And I love those meetings because it’s just probably the most pure version of what we do, right? Just helping somebody who hasn’t already amassed a bunch of money, helping those people get started, knowing that the seeds we plant today are going to be fruitful in 20 years, 30 years.

But when that same child — or I shouldn’t say child, a young adult — comes back to me 5 years later and says, hey, I’m getting married and we’re looking to buy our first house, how should I approach this? Those are the rewarding moments in this job, right?

One of the things I’ve truly noticed is very few of the more successful families I’ve met — in business and not in business — they usually have good advisors. Good CPAs, good estate attorneys, good investment advisors, good wealth advisors, right? Sometimes the same person wears more than one hat in those relationships. But not being afraid to go to an expert, not feeling like they have to know everything themselves, is massive, right? In my opinion, it separates them from the people who aren’t as successful — they go to the experts for help, and they do not fear asking a question.

There’s no such thing as a dumb question, and it’s 100% true — but you might feel dumb when you’re asking it. No question is a dumb question, because it’s something you didn’t know and you need to learn. So one of the things I’ve noticed is, yeah, taking advantage of the advice that’s available, and getting it from a qualified source. I mean, anybody can say anything on the internet. But go to somebody who’s done this at a high level and take advice from them.

John Walker:
Yeah, absolutely, and just to underscore another point you made there, Jason — we are privileged as a part of the planning process to help families create tax and estate plans as well. And those meetings that we get to run where we are passing down not just institutional knowledge, but also what the plan is, right? What the estate plan is, what those rules and guidelines that we can help use trusts to enforce — and making sure that the family’s values of how this wealth was created maintain themselves, right?

That is another big component of this. Using the tools and resources that are available to ensure that your long-term plan stays on track and extends maybe beyond you, if that’s something that’s important to you and your family, right? Again, putting the guardrails in place, sharing that information, and making sure that everyone is aligned can help wealth last significantly longer.

So Jay, before we leave, why don’t we just kind of recap a little bit these main observations we’ve had. Certainly, the one that we first discussed is prioritizing ownership over consumption, meaning buying and investing in assets that will build wealth instead of liabilities that will drain it.

Jason O’Meara:
Right? And with the investing, they tend to have a systematic investment plan — moving money into the markets or into investments and not chasing little trends and fads.

John Walker:
Which is really kind of the other main thing — playing the long game, right? Looking for — recognizing that delaying a little short-term pleasure today could create some big rewards in the future, and letting your money work for you to create generational wealth.

Jason O’Meara:
Right. And by doing that — through the process of that — they tend to work with good advisors, whether it be CPAs, estate planning attorneys, financial advisors, wealth advisors — basically getting good information and then also passing that information from one generation to the next.

John Walker:
Jason O’Meara, certified financial planner and market leader here at Mercer Advisors. Thanks so much for joining me for, I think, a really, really important conversation.

Jason O’Meara:
Absolutely, great topic.

John Walker:
And if you are listening wondering, hmm, does this apply to me? Or maybe I’m not feeling as confident that I’m using these behaviors or on track to create the legacy that I’d like — we’re always here to help. Jason and I would love to hear from you. Feel free to email us anytime at jwalker@MercerAdvisors.com or JOmeara@MercerAdvisors.com with any questions. We always love to hear from our listeners. I’m John Walker, regional vice president of Mercer Advisors. On behalf of Jason O’Meara, thanks so much for listening to the Your Life, Your Wealth podcast. See you next time.

Announcer:
If you’re interested in learning more about applying the principles we discussed to your personal financial circumstances, please visit merceradvisors.com.

This presentation by Mercer Global Advisors Incorporated, also known as Mercer Advisors, was intended for general information purposes only. No portion of the presentation serves as the receipt of or as a substitute for personalized investment advice from Mercer Advisors. All expressions of opinion reflect the judgment of the speaker as of the date of recording and are subject to change.