By Adam Jusko, ProudMoney.com, adam@proudmoney.com
When we buy a house, we expect that its value will go up over time, and we’ll sell it for more than we bought it for. When we buy stocks, we expect that the price will rise and we’ll sell them for more than we bought them for. And yet, when we go to the supermarket, we shake our heads at the fact that a cart of groceries that used to cost us $100 now costs $150. We want the upside of rising prices, but we put blinders on when it comes to the downside — a dollar doesn’t buy what it used to, and tomorrow it will buy even less. Forgetting this fact can seriously hurt your financial picture.
Price inflation and our need to outrun it is a central idea in Chad Gordon’s helpful and enjoyable book, Wealth By Virtue. Gordon does a thorough job explaining how the world keeps getting more expensive, but our inability to completely comprehend this fact makes us choose financial strategies and products that actually make us poorer — even while our bank balances are going up. If we truly want our money to grow in a way that means more purchasing power (or at least as much purchasing power as we have today), we need to get a return that is higher than the rate of inflation. If you’re making 1.5% on your savings while prices are rising 2%, you’re falling behind, regardless of how satisfying it feels to look at your growing balance. (Not that 1.5% is getting anyone super excited.)
Gordon’s answer to the problem? Equities. Specifically, stocks. Regardless of the bumps along the road, the stock market has shown over its history to consistently whip inflation — as long as you have a long time horizon and the stomach to handle the downturns. Most people have the time, but not the stomach — they repeatedly retreat into investments that feel “safe” even while those investments are actually eroding their wealth.
Gordon’s not some zealot for the stock market, though. He is a financial advisor who is well aware of people’s varying appetites for risk. Which is why he keeps hammering away at his points about inflation and how to beat it. Having an ownership stake in growing companies (through stocks) has proven time and time again to be the most reliable way to grow your money enough to truly get ahead. (Though real estate has its own inflation-busting upsides.)
This is not just an investing book, though. Gordon covers the major financial pillars of growing your money, but also concentrates on protecting your money via insurance, tax planning, etc. Even better, he takes a step back and discusses philosophy:
- What do you want money for?
- Are you willing to sacrifice some things today for more options tomorrow?
- Does obsessing over frugality to build a bigger bank balance necessarily lead to a happier life?
These are questions you have to answer for yourself, although Gordon definitely has his opinions.
Finally, let’s talk about the physical book itself. Gordon may be a financial advisor, but he obviously has an interest in art as well — I’d say Wealth By Virtue qualifies as the rare personal finance “coffee table book.” It offers a nice use of color to draw out content that could be rather dry, engaging illustrations, a heavier paper stock — it’s the kind of book you want to hold at the bookstore, even if you have no idea what it’s about. Not just a paperback with a flashy cover but instead a solid, attractive hardcover.
Finances play such a central role in how our lives play out, and yet our schools rarely even touch on how we handle our money — much less making it a required class. If they did (and they should), I’d suggest Wealth By Virtue would make an excellent first textbook on planning students’ financial lives.