13 of 16 people found the following review helpful:
4.0 out of 5 stars
Good Read but No New Findings, March 1, 2008
This review is from: Get Rich, Stay Rich, Pass It On: The Wealth-Accumulation Secrets of America's Richest Families (Hardcover)
This book caught my attention because it said it used data from thousands of wealthy households. There are not many studies which use financial data from real investors (Except Clarke's book Wealth of Experience where he was given access to Vanguard customer data), so I bought this book.
Over-all I was disappointed with the content of the book. The shocking finding in this book was supposed to be that wealthy people allocate large proportions of their asset allocation to two asset classes (owning real estate and owning family businesses)....plus some investments in conventional stocks and bonds.
I hate to disappoint the authors who researched so hard to write this book, but this same asset allocation has been known for over 1,000 years:
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve." From the Talmud, Circa 1200BC to 500AD.
I have stayed away from investing directly in real estate due to its historically low return compared to stocks. Marlys Harris did an excellent article titled Stocks versus Real Estate for Money Magazine. She cited a Francis-Ibbotson study which found real estate returned 9.5% compounded from 1978-2004......but the S&P 500 returned a compounded rate of return of 13.4%. Robert Shiller looked at real estate returns back to 1890 and concluded that real estate only produced truly outstanding returns twice.....after WWII when GI's were starting families....and 1998-2005......which he contends was a temporary bubble. Shiller predicts that real estate is now trending back to its historical return of 3%...about equal to the inflation rate. Harris examines every aspect in her stock to real estate comparison....including return, leverage, costs, taxes, transparency, effort, volatility, and diversification.....before pronouncing stocks the winner over real estate.
A couple years ago I watched a TV show with about 5 people who advocated using different types of investments to get wealthy. Phil Towne, the stock guy.....told the real estate lady (I forget her name)...something like....."Why mess around with real estate with its low single digit returns when you could invest in stocks with 10% historical returns?" Towne then told her, "I understand if you invest in real estate if you don't know anything better exists.....like stocks."
The authors of this book admit the wealthy people they interviewed did not consciously plan to invest so heavily in real estate and family businesses. So could it be that these people bought real estate because as Phil Towne said above.....they did not know any better investment options existed? How much more wealth could they have accumulated if they had invested in a broadly diversified portfolio of stock and bond index funds versus real estate?
The authors did have an interesting explanation why the Vanderbilt's ran out of money. It only took 48 years to spend the fortune and end up with the first penniless descendant. They said the money was spent on yachting, horse breeding, auto racing, drugs, alcohol, and divorce. It also did not help that the shipping and railroad business changed into low profit and low growth businesses.
I guess I can agree with the author's finding that owning a successful family business is a good way to become wealthy. My only issue with this.......is that it is very tough to start and maintain a successful business......as witnessed by the very high failure rate of new businesses.
The authors contend that owning real estate and a family business makes it more likely for the family fortune to last longer (although the Vanderbilt's had no problem selling real estate to fund their spending habits).
My research indicates that from 1972-2007, REIT's (Real Estate Investment Trusts) returned 12.91% with one sigma of 16.67%. Over the same period, the S&P 500 returned 10.94% with one sigma of 17.18%. REIT's are stocks which invest in real estate. One low cost example is Vanguard's REIT fund symbol VGSIX.
I would contend that for most people, investing directly in real estate is not the way to go (See Marlys Harris's excellent study)........and starting your own business is a very risky proposition. I would rather invest in a broadly diversified portfolio. One example of a broadly diversified portfolio would be 30% Total U.S. stock market (VTSMX), 20% International Stocks (VGTSX), 10% REIT's (VGSIX), and 40% total bonds (VBMFX). This example portfolio returned 10.92% with one sigma of 10.23% from 1972-2007. See some of the suggested books below for more information on asset allocations.
This book was an easy and interesting read, but the key finding of investing directly in real estate and family businesses is not revolutionary and in my opinion, not practical for most people.
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
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3 of 3 people found the following review helpful:
1.0 out of 5 stars
Too simplistic, I wanted more meat, July 3, 2008
This review is from: Get Rich, Stay Rich, Pass It On: The Wealth-Accumulation Secrets of America's Richest Families (Hardcover)
Horrible book because I'm spoiled by books such as: Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich by Robert Frank
Money: Who Has How Much and Why by Andrew Hacker (Paperback - April 9, 1998)
The R. Frank book is very well written.
This book is too simplistic. It offers a few vignettes then preaches that owning real estate is the path towards riches. Written before 2007 so no doubt the bubble economy in real estate colored the authors' views. Please avoid this book unless you are a very light reader.
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2 of 2 people found the following review helpful:
3.0 out of 5 stars
A quick and pleasurable read, but don't expect to get rich from it., July 31, 2008
Basically, this book tells you that the rich get that way by having multiple streams of income (investments, businesses and real estate). The statistics are interesting, but overall the book comes up short with respect to innovative ideas for how to get there. It is a basic primer and provides some good information about how to go about reallocating your investments and getting started in real estate and acquiring a business. On the plus side, this book is somewhat motivational and may spur you to action. In many cases, that may be enough. For a more practical book, I would recommend "Multiple Streams of Income" by Robert G. Allen.
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