What's Really Behind Romney's Wealth

What We Can Learn From Romney’s Success

By: Brendan Magee

Jan. 2012

Saturday morning I was listening to am1210’s The Big Money Show hosted by Steve Cordasco. Cordasco made the case that the 401k system in this country is broken. As evidence to that he cited a study that showed that only two percent of the workers who have been participating in a 401k plan had reached the $1 million dollar mark. To him, this meant the remaining 98% were failing to make the grade. By comparison, Cordasco spoke of the investment success that Republican Presidential Candidate Mitt Romney has achieved. He said the advantage that Romney had over the average 401k plan participant was that he had autonomy in that he could decide the investments he would invest in.  Whereas, Romney had an endless list of investment options, the 401k plan participant could only invest in the options their employers made available.

For the time I could listen, Coradsco got a few callers to agree with his position. These were 401k participants who felt f they could do a better job of selecting investments for their 401k plan than their bosses.

In either case, I think Cordasco and the shows listeners are missing the main reason for Romney’s wealth. Bear in mind, I have never seen Romney’s portfolio. I have no idea what he invests in, nor a clue about his investment strategies. However, I don’t think I am going too far out on a limb when I say it’s not so much about the investments he’s chosen as it is his behavior that is responsible for his success. I know that over his lifetime if he engaged in a constant buy high/sell low approach, he wouldn’t come anywhere near the amount of wealth he’s been able to attain. 

Hopefully this is a good illustration of what I mean. Let’s suppose you had the money and you built a magnificent 10 bedroom house. This house had the most modern appliances, an in home movie theatre, swimming pools, marble floors, luxurious bathrooms with Jacuzzi bathtubs , tennis courts, a huge kitchen, big flat screen t.v.’s etc. The market value of your house upon completion was around $5 million. Now just after you moved in, you proceeded to take a jack hammer and sledge hammer to every room in the house. Your $5 million house isn’t going to retain its value for long. The homeowner’s and investor’s behavior has to be consistent with their asset growing in value or it will lose value.

401k plans give their participants a variety of options to invest in. There are stock funds, bond funds, money market funds, and fixed options to choose from. If we take a look at the market rates of return for just a few of the equity and bond markets from 1973-2010, the returns are more than enough for investors to outpace the rising cost of living, 4.42%. U.S. Large Co. Stocks, 9.81%, U.S. Small Co. Stocks 12.59%, Long-term U.S. Government Bonds 8.57%, International Large Co. Stocks 9.58%, International Small Co. Stocks 13.38%(As noted by CRSP). 

So the question becomes, if investors are not seeing these kinds of returns from their 401k plans or other investments, why aren’t they? It’s not as if these investments are not readily available to every investor. The answer could be that their behavior is inconsistent with realizing these returns. Could an investor be sabotaging their own financial security?

So if investors are having difficulties with their investments and are solely looking at their portfolios, they may be working on the wrong end of the problem. They might have to step back and take an honest look at themselves as investors. As painful as that may be, it’s nothing compared to running out of money in retirement, having to take a job at a fast food store in your 60’s or 70’s, or showing up on your children’s front door with no place left to go. The great thing about looking at yourself as an investor is the responsibility is in the hands of the investor not in the hands of a portfolio or a mutual fund. When responsibility comes back to the investor, so does power and control.

When Romney says in the debates he’s not going to apologize to anyone for the success he’s had, I think that comes from a history of his taking control of his finances and not being dependant on anyone else. That is something to be proud of and most people in his shoes would be just as proud.  I think most people want control of their destiny in their hands, not anyone else’s. We just won’t get it though if we fail to realize our behavior more than the investments we choose is going to determine our success or failure.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions, comments, or suggestions call 610-446-4322 or e-mail Brendan@coachgee.com.