The Path to Wealth: Slow Road vs. High-Speed Lane
Who wants to be a millionaire?
What--is there anyone left out there who isn’t already?
Newly minted millionaires, and those who were trying hard to join them, seemed to be in our faces like never before in 1999.
The ABC quiz show, of course, was the TV manifestation of millionaire mania. And how about the Fox-TV follow-up: “Greed”?
But was art just imitating real life?
The astounding gains in technology stocks in 1999, and Wall Street’s appetite for nearly any “dot-com” company that Silicon Valley could dream up, created millionaires and billionaires like no investment craze before it.
Many people made it to millionaire status just by working at the right place. That included about 150 employees of Quest Software in Irvine, for example, thanks to stock options they got when their company went public at $14 a share in August.
The stock’s price today: $102.38, a mere 631% gain from the offering price. By comparison, it’s taken the average New York Stock Exchange issue 17 years to rise by that amount.
The visionaries behind the Internet boom reaped some of the greatest instant wealth.
Entrepreneur David Bohnett, the 43-year-old founder of Santa Monica-based GeoCities--the largest provider of personal Web pages’--saw his personal wealth cross the $1 billion mark, thanks to the stock he got in Internet portal Yahoo when it bought GeoCities in mid-1999.
And Yahoo, like many tech stocks, can’t stop making its shareholders richer by the day: The shares rocketed $42.31 to a record $475 on Monday.
But as captivating as this explosion of wealth has become, it is not, of course, reality for most Americans. And the images worry some financial advisors.
“The Internet mania as we have seen it is redefining our measure of success,” says Victoria Collins, a well-known Southland financial planner. “It is no longer hard work and perseverance. It’s being in the right place with the right stock at the right time. It’s a whole new slant on life.”
It’s also likely to be fleeting, Collins warns.
“There are many millionaires, but they may be temporary millionaires,” she says.
Indeed, many Wall Street pros--even some who own highflying Internet stocks--agree that few of these companies may exist five years from now. The attrition rate even in booming industries often is extremely high.
While the dot-coms get the spotlight, the irony is that plenty of people are on the path to millionaire-dom, but the journey is slower--although the pace certainly picked up in the 1990s, with the stock market’s boom and the housing market’s significant gains in many parts of the country (including, recently, in Southern California once again).
San Francisco-based research firm Spectrem Group estimated that 7.9 million U.S. households in 1998 had a net worth of $1 million or more. That was more than double the 3.5 million households in that group in 1990.
For many people, the fact that they have accumulated $1 million in wealth, or close to it, often comes as surprise.
“It just sneaks up on you,” says Tim Kochis, president of San Francisco-based financial planning firm Kochis Fitz Tracy & Gorman Inc. “It happens little by little. One day you fill out a bank statement and say, ‘Well, look at that.’ A lot of people would be surprised when they add it all up to realize that they are millionaires already.”
That’s just what happened to Richard McKenzie. The 57-year-old UC Irvine professor and author of “Getting Rich in America” says he’s lived a pleasant, middle-class life, working as a college professor, writing the occasional book and saving modest amounts.
One day three or four years ago, he had to fill out a form and realized with some shock that he was worth well over $1 million. The stock market’s generous returns simply lifted the value of his portfolio into territory once inhabited by the “rich.”
“Becoming a millionaire is not difficult,” McKenzie contends. “That’s one of the reasons why I can admit it. All you need to do is work and save as much and as often as you can.”
Ralph Roberts, 43, agrees. He’s a Realtor in Warren, Mich., who never finished college, but who is well accustomed to 16-hour work days.
Today, he estimates his net worth at around $15 million. He passed the $1 million mark sometime before he got married at age 29, but only knows that because his attorney made him fill out a net worth statement in order to draw up a prenuptial agreement.
“It wasn’t life-changing. I still drove a four-wheel drive with a snowplow on the front so I could plow out the rental houses that I owned,” he says. “I was the bluejean millionaire.”
Roberts now owns a 10,000-square-foot mansion. But he still plows snow around his rental homes and works a grueling schedule.
“It is easy to be a millionaire in this country, but too many people don’t want to pay the price,” he says. “If you hang out with your high school friends, who sit around and drink beer all night and skip work, that’s how you are going to end up.”
The advice from people like Roberts may sound tired to some, but that’s because it is timeless, financial advisors say: Spend sparingly. Save prodigiously. Start as soon as you can. Invest in stocks--preferably a broad diversified portfolio of them so your portfolio won’t bump around in value too much. Keep it up, and give it time.
Consider Karen and Bob, a Los Angeles couple in their early 40s who didn’t want their last name used. They never did anything particularly clever in their lives, Karen says. They simply both graduated from college in their early 20s and immediately got jobs.
Their companies offered 401(k) retirement savings plans and they began to contribute to them right away. Money was tight at first, but after a few raises, the 401(k) contributions became painless, even though they were contributing increasing amounts as their incomes rose.
Because they were both young, they invested the 401(k) savings aggressively--mainly in funds that bought stocks. Otherwise, they went about their lives, buying a small house that they could afford, fixing it up, and never living beyond their means.
Today, their investment portfolio--including the retirement savings--is worth about $1.5 million, they say. And thanks to hitting Southern California’s real estate market at the right time, they’ve got about $500,000 in home equity as well.
Of course, some people whose wealth is far smaller today may understandably fear that the best years for the stock market are behind it.
The blue-chip Standard & Poor’s 500 index rose 18% a year, on average, in the 1990s. But as everyone knows, this has been a bull market like no other.
What if those returns shrink going forward?
Consider: A 40 year-old today who started investing $200 a month in an S&P; 500 index fund at age 20 would have $398,931 today. If he simply left that money alone, and was fortunate enough to earn even 10% annually from here on out, he’d have $2.9 million in another 20 years, at age 60.
That’s the magic of compounding returns.
McKenzie, the author, insists that any 25-year-old with a decent job can easily get on the path to real wealth by beginning to invest $2,500 a year in a diversified portfolio of stocks.
If you earn just an 8% average annual return, you’ll be a millionaire by retirement, he notes. True, a million then won’t be worth a million now--but the point is making a start toward some kind of meaningful nest egg.
Even Roberts, who made his fortune in real estate, says: “I wish I could tell all the 18- and 20-year-olds of the world that if you just start investing in your 401(k) plan, you’re guaranteed to be a millionaire many times over. It’s really not hard. But no one ever tells you that.”
Of course, the problem for many people in accumulating wealth is that it’s too easy to spend with abandon.
Like many self-made millionaires, McKenzie and his wife live modestly. “I’m embarrassed to tell you how cheap I am,” he says.
That doesn’t sound terribly sexy in a prosperous economy. Nor is it realistic for many younger people who are just beginning to build their lives.
For all the criticism of the Internet-stock mania and the hunger for instant wealth, it is also uplifting in one major sense: For younger people, in particular, the Net-business boom has opened up spectacular opportunities to be entrepreneurs--or to try, anyway.
One of the worst years in David Bohnett’s life was 1993. His longtime partner, former California judge Rand Schrader, slowly succumbed to AIDS. Bohnett, who had studied finance and then worked for a software company, quit his job without a plan for the future.
Schrader had left him $386,000 from a life insurance policy. Bohnett moved to a small apartment in Beverly Hills and traveled. Almost a year later, he was sitting on a plane reading a magazine, when he stumbled on a story about the Internet.
The reason the Web so appealed to Bohnett probably had a lot to do with his background. He grew up in a small town in Illinois. His father was a salesman; his mother a preschool teacher. But the idyllic small-town life was isolating to a kid who didn’t do Little League and eventually became one of the West’s most outspoken gay activists.
He longed to talk to other people who were like him. To realize he wasn’t alone.
He took his life savings and poured it into setting up a Web company called Beverly Hills Internet. The concept: Let people experience “Hollyweird” firsthand by watching the famed corner of Hollywood and Vine via video, 24 hours a day, seven days a week. It was remarkably popular.
By 1996, Bohnett had expanded his concept to connect people with a variety of interests. Renaming his company GeoCities, he created theme neighborhoods and allowed people, dubbed “homesteaders,” to create their own.
A year later, the site was boasting 1 million regular visitors, which made GeoCities one of the fastest growing sites on the Web.
The company went public in 1998, raising $86 million and making Bohnett a wealthy man. A year later, GeoCities was swallowed by Yahoo in a $3.9-billion deal that made Bohnett far wealthier still.
Today, he says, he wants to redefine what it means to be rich by contributing a substantial amount of his newfound wealth to charities that target gun control, voter registration, transportation, and social services for gays and lesbians. Already, the foundation he funded with $30 million has given $500,000 in grants.
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Millionaire-Maker Funds?
No stock mutual fund is a sure thing, but these funds all beat the return on the Vanguard Index 500 fund (which tracks the Standard & Poors 500 index) over the last one, three, five and 10 years. Each of these funds has had the same manager at the helm for at least eight years. For more information on these and other funds, see the Morningstar data beginning on Page S13.
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Avg. total return:* Assets 800- Fund 5 yrs. 10 yrs. (billions) T. Rowe Price Sci. & Tech 38.9% 30.2% $10.0 Spectra 41.1 29.2 0.6 Harbor Capital 34.1 23.7 6.9 Appreciation Legg Mason Value 38.0 21.6 12.2 MSDW Amer. 31.7 21.6 8.7 Opportunities Reynolds 39.1 20.9 0.5 Blue Chip Growth Enterprise Growth 31.4 20.2 1.2 Vanguard U.S. Growth 30.3 19.8 17.8 Northeast Investors Growth 32.1 19.0 0.3 Weitz Value 28.9 18.1 2.6 Vanguard 500 Index 28.5 18.1 98.2
Fund phone T. Rowe Price Sci. & Tech 638-5660 Spectra 711-6141 Harbor Capital 422-1050 Appreciation Legg Mason Value 577-8589 MSDW Amer. 869-6397 Opportunities Reynolds 773-9665 Blue Chip Growth Enterprise Growth 432-4320 Vanguard U.S. Growth 662-7447 Northeast Investors Growth 225-6704 Weitz Value 232-4161 Vanguard 500 Index 662-7447
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* Annualized figures
Sources: Morningstar Inc.; Times research
