The Keys to Building Wealth

As financial advisors we understand that for many Americans, building true wealth might seem elusive, even illusory considering that many people, who recently were sitting on six and seven figure 401(k) plans and high home equity values, now feel uncertain about their plans for retirement. Simply put, the lessons learned from the financial crisis of 2008 – 2009 are that wealth can be fleeting especially for those with “all of their eggs in one basket”.

In our neck of the woods that may mean owning a lot of real estate, having too much stock in one company, or large balances of cash in a savings accounts earning little to no interest and loosing ground to inflation.

Charter Oak believes the process of building wealth begins with developing goals and identifying what you want to achieve. Then you develop a plan, and create strategies to help you build, enhance and preserve your wealth for a good life, the rest of your life.

Helping our clients define their goals

If you give a thousand dollars to a person who has no clear purpose in life, no ambition in how to live a good life today or in the future, what do you suppose they will do with that money? You are correct if you said they’d most likely to spend it. For the majority of Americans who have yet to clearly define their destination of a “good life” in retirement, it is of no consequence to them which path they take.

Without a clear destination it becomes easy to focus on the here and now, which favors immediate gratification over achieving long-term goals. At Charter Oak, we focus on providing clients with our intellect to make certain that they have made the right financial decisions for themselves and their welfare of their families for the long term.

“The journey of a thousand miles begins with a single step” – Lao Tzu

We believe wealth building begins with a clear vision of what a good life looks and feels like to you. Then we can add the math, develop a plan, and create strategies to help you build, enhance and preserve your wealth.

The value of a Long-Term Investment Strategy is Priceless

A 10-year study conducted by a well known research company called Dalbar titled, “Quantitative Analysis of Investor Behavior,”1 found that investors, through their own behavioral missteps as dictated by human nature, consistently failed to capture as much as 60 percent of the returns generated by the stock market. Whether it is through chasing returns (last years winners), succumbing to the euphoria of market highs (watching too much network news), or fleeing with the herd at market bottoms, too many investors allow their behavioral tendencies to guide their investment decisions. This almost always guarantees under performance.

The bottom line is: Studies conducted over decades have clearly shown that investors, who adhere to a long-term investment strategy based on well-defined goals and objectives, will outperform investors who don’t. 

The lesson for our clients

During the early 2000’s, stock prices and home values swelled, creating a “wealth effect” which made people “feel” as if they were wealthy. So, many Americans didn’t feel the needed to save.

According to the U.S. Department of Commerce, the personal savings rate declined steadily, from a high of nearly 12 percent in the mid-1980s to a negative 1.8 percent in 2007.

Since the crash of equities and home prices in 2008, the savings rate has rebounded, somewhat, to 5 percent. However, now many in the Baby Boom generation, arguably the most prolific income earners of any generation, feel unprepared for retirement.

The lesson learned from the financial crisis is that wealth can be fleeting. True wealth is built over time utilizing a disciplined savings and spending approach. The amount of wealth you build is not just a function of how much you can save and invest strategically; it’s also a function of how much you spend.

Simply stated we believe that living under your means will almost always result in a higher savings rate and financial success.

Charter Oak Capital Management is a registered investment advisor that provides retirement planning, financial planning and fee based investment portfolio management to individuals and non-profit organizations at their offices that are located in Portland & Kennebunk, Maine and Portsmouth, New Hampshire.

1 Dalbar, Inc. “Quantitative Analysis of Investor Behavior 2012”

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