Do you know how five of America’s richest families lost it all?
Neither did we … until we saw an article in our news feed promising to tell all. So down the rabbit hole we went.
After all, we’re STILL stinging from the 2008 wipe out. So any lesson about landmines on the road to building and preserving wealth is an enticing topic.
And if mega-wealthy families can lose nine-figures, it makes street rat investors like us feel less bad about our six-figure screw-ups.
The author of the article briefly describes the lost fortunes of Cornelius Vanderbilt, John Kluge, George Hartford, Joseph Pulitzer, and Bernhard Stroh.
Aside from Vanderbilt (as in University) and Pulitzer (as in prize), you might not recognize the others.
Hartford was a retailer … creating what’s described as “Walmart before Walmart” … the biggest in the world in 1965.
But the fortune he built was squandered by heirs who could act like wealthy business moguls because they’d inherited the trappings.
But they didn’t really know what they were doing. If you’re going to fake it ’til you make it … keep the stakes small until you know you know you’re capable.
Stroh was a beer-maker (we like him already), but when he died, his sons took over and decided to expand faster than their cash flow could support.
Their $700 million fortune went flat … along with their beer. Tragic.
Kluge was a media mogul who sold a network of TV stations to what is now Fox for $4 billion. That’s a lot of popcorn.
Divorce divided the Kluge fortune, and the ex-wife dumped ALL her money into a down payment on a vineyard … to which she added a big mortgage.
Perhaps unsurprisingly the business failed, the land was lost in foreclosure, and some true real estate investor named Trump picked it up for pennies on the dollar.
Well, according to the article’s author, the former Mrs. Kluge should have put her fortune into … wait for it …
“… low-risk investments like certificates of deposit (CDs), which are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per individual.”
But then an astonishing admission …
“…CDs are promissory notes — essentially IOUs …”
We’re guessing this author has never heard of counter-party risk, interest rate risk, or inflation risk. Savers take on ALL those … plus lost opportunity.
Savings in the bank is FAR from safe.
And while $250,000 of FDIC insurance is great … up to $250,000 … we’re pretty sure Mrs. Kluge was dealing in more sizable sums.
So the advice in this article is HORRIBLE.
Or is it?
As dumb as it is to make a giant unsecured and uninsured low interest loan to a bank, for someone with no financial education, it’s almost reasonable.
Of course, in the real world, when big money needs a place to “deposit” huge sums of cash … i.e., make low interest rate loans … they go straight to the source: government bonds.
After all, if the bank fails, they’ll turn to the FDIC (which is woefully underfunded and arguably insolvent), which would then turn to Uncle Sam (ditto), who would turn to the Fed … who just funds everything with inflation (stealing from the workers and savers).
Read that all again and REALLY think about it.
But the bigger lesson from the article is …
“Make informed investments …”
However, rather than dumb down your investments to your current level of financial education …
… we think it makes a LOT more sense (and dollars) to RAISE your financial knowledge by investing first and foremost in yourself, your advisor network, and an investor mastermind group.
In other words, get smart and surround yourself with smart people.
Money doesn’t make you smart. But smarts can make you money.
The tragedy of our time is millions of people are facing a bleak retirement because of the pervasive fraud and mismanagement of pensions …
… the hidden and misunderstood wealth-stealing cancer of inflation …
… a dangerous ignorance of the important difference between speculation and investing …
… and a false focus on net worth over passive income as the ultimate metric of wealth.
You can read the referenced article yourself for the rest of the stories of the rise and fall of the rich families. You’ll find they’re all variations on a theme.
Our reason for drawing all this to your attention is to remind you that most mainstream financial media is loaded with dumb ideas and devoid of any understanding of the wealth-building power and resilience of income property investing.
Yet the need for Main Street investors to tap into the power of real estate has never been greater …
The Fed continues to DESTROY savers.
Yet ignorant (though perhaps well-meaning) journalists promote saving in banks … loaning money to broke and corrupt institutions which are backstopped by broke and corrupt institutions … as a panacea of safety in uncertain times.
Wall Street continues to promote “buy low, sell high” speculation as an “investing” strategy. It’s not.
Besides, Main Street investors are ill-equipped to swim in the shark invested waters of Wall Street for long without losing a few pounds of flesh … which is the entire reason they keep being invited to swim.
Of course, we’re preaching to the choir. You’re probably already sold on real estate investing.
But our point is the world needs YOU to be an outspoken, well-prepared, advocate for REAL real estate investing.
Average people can produce WAY above average results with much less risk though well-managed income producing properties in solid markets and properly structured with optimal leverage for resilient cash-flow, inflation-destroying leverage, and tax-defying deductions.
If you know real estate, we encourage you to teach it.
And if you’re a proven producer of real estate profits, consider starting a syndication business to partner your skill with other investors’ money.
No matter how you do it … join the crusade to move money out of banks and Wall Street and back where it came from, belongs, and does the most human good … on Main Street.
Until next time … good investing!