Don’t Let Outdated Money “Rules” Turn Your Retirement Plan into an Antique
"Save more than you spend" sounds like a timeless piece of money advice, as true today as it was two hundred years ago.
But in the mid-1800s, many folks believed you needed to spend your money as soon as possible. In fact, saving too much back then could lead to financial ruin!
That's just one example of how Americans' attitudes about money have evolved throughout history. But it's not just rules of thumb and hand-me-down wisdom that's changed. It's the nature of money and our relationship to it.
On today's show, we welcome author Joseph S. Moore to discuss his new book, How to Get Rich in American History: 300 Years of Financial Advice That Worked (& Didn't), and the surprising ways five money philosophies have shifted over time.
1. "Don't Save Money."
"If my dad sits down his grandkids and says, 'Now, children, whatever you do with money, never save it,' I'm going to ask dad to step away from the kids," Dr. Moore jokes. "That's terrible advice now, but it was not terrible advice in the 1800s. From the middle of the 1800s all the way to the dawn of the Civil War, there are over 10,000 separate self-issued currencies in the United States. You know who's not issuing a currency? The federal government. There is no U.S. dollar. There are dollars in the U.S., but many of them come from banks, some from companies, and some from private individuals."
And if a bank or business went under, or if the guy issuing all those IOUs skipped town, that currency became worthless.
Under those conditions, it made sense to convert paper into tangible goods as quickly as possible, whether you were buying necessities for your family or investing in farm equipment to help with the next harvest.
Today, centralization, regulation, and FDIC insurance have made the U.S. financial system much more stable, and made saving (and investing!) much more reliable money strategies.
2. "Here’s What Worked for Me."
Some financial advice is more like an heirloom that seniors pass down to the next generation: "This worked for me, so it will work for you too."
But, as Dr. Moore points out, you have to consider not just the advice, but the history that shaped that advice.
You might have memories of a parent or grandparent who avoided credit cards like the plague and paid off a 30-year-mortgage in under a decade. But that attitude about debt probably had less to do with sound money management than it did with growing up during the Great Depression or living through World War II.
The Baby Boomers didn't have that same lived experience. By the time Boomers entered the workforce, managing debt responsibly was seen as a necessity to build a comfortable life.
Another "heirloom" you might have inherited is tilting your portfolio towards bonds and stocks that produce reliable dividends. But, again, Dr. Moore argues you have to understand the context of where and when that advice comes from, and the limits of old-fashioned advice in a different market environment.
"In 1912, everyone would've told you to buy bonds," Dr. Moore says. "Why would you not take a guaranteed 4% to 5% return in a safe, inflation-free environment? And then it stopped working. If I go to stocks, dividends have been most of the returns for most of history. And so the advice you would have gotten from the 1910s, all the way until the early 1980s, was that the kind of stocks you wanted were steady high dividend stocks. That's because, from the George Washington administration until Michael Jackson's 'Thriller' album, over 90% of returns from stocks came from dividends. And then that advice becomes less effective as a good part of the returns in stocks shift to capital appreciation due to tax law changes and other factors. So we tell our kids and grandkids, ‘That's what works,’ and then something else starts working."
Understanding this history can help you respect your family's money beliefs and take what you can use without being constrained by rules that no longer apply.
3. "Diversify Everything!”
Andrew Carnegie rejected diversifying investments with the famous quip, "Put all your eggs in one basket, and watch the basket."
That's because, throughout American history, the rules for building wealth and preserving wealth have been quite different.
The Carnegies and Rockefellers of the world, as well as millionaire-next-door types, often built their fortunes by concentrating on a single industry, mastering a specific skill or craft, or reaching the c-suite after decades at a single company. After this concentrated effort, or concentrated deployment of resources, successful people began to broaden their horizons and their portfolios.
"Do not confuse what the rich have with what the rich did to have it," Dr. Moore says. "When you're trying to go up the ladder and you want to go as high as possible, you do that by concentrating. Sometimes that's investing, sometimes that's in a small business, sometimes that's just crushing it at your career. I tell young people sometimes, 'If you can invest $500 in the stock market or you can invest that in a credential that's going to eventually double your salary, double your salary.' Concentrate on being really good at what you do. Once people had concentrated and succeeded, they diversified. That was the advice you would have found throughout most of history: you start by concentrating, and as you succeed, you then diversify out of that concentration."
From a pure money management perspective, diversification is still incredibly important, especially for younger workers. The sooner you start putting your money to work for you, the sooner compounding can start working its magic to grow your wealth.
But there's real wisdom in Dr. Moore's distinction between how you grow wealth and what you do with it once you have it. Disciplined concentration of time and effort is how so many of the hard-working folks we advise at Keen Wealth have given themselves the resources to support their families, achieve their professional goals, and live their best lives. And diversifying those resources across a balanced portfolio keeps those resources growing.
4. Hit the “Perfect” Retirement Number.
Cable news and social media are full of "magic numbers" that guarantee financial success and peace of mind. But the idea of measuring your life with a single number is only about a hundred years old. And its most common application didn't have anything to do with "Keeping up with the Joneses" or deciding if you were ready to stop working.
"George Washington did not know his net worth,” Dr. Moore says. “That was not a concept that existed. It comes out of business accounting, and it only starts being applied to average families' money sometime in the early 20th century. Where you really found it was in probate court records: You're dead, now what are you worth? That was the only time anybody cared."
According to Dr. Moore, American families have, historically, been much more concerned about finding the right balance between cash flow and maintaining wealth. Of course, balancing the proverbial checkbook involves numbers, too. But in my experience, those numbers are never one-size-fits-all. They're personal equations that balance priorities, maintain perspective, and lead to sound financial decisions.
It doesn't matter if your numbers look "perfect" on a social media post. It only matters if they fund the lifestyle you prefer today while also building your wealth towards a secure future.
5. "How Much Is Enough?"
Although he hasn't reached his 60s yet, Dr. Moore already has some personal, real-world experience with retirement.
After "jumping off the Titanic" as an overextended homeowner in 2008, Dr. Moore "concentrated" on the real estate industry. He built what he felt was “enough” of a nest egg to retire from teaching college in his mid-40s.
But Dr. Moore quickly discovered that when it comes to a fulfilling retirement, money is rarely “enough.”
"I guess my ‘number’ was $2.5 million," jokes Dr. Moore. "And it was ‘enough’ because I come from rural South Carolina. My 'enough' was a very different line than most people's that I interact with in the professional world. Now I could do anything I wanted with my free time. And apparently, what I want to do when I'm retired is follow my wife around the house like I'm a puppy. And after about two years, she sat me down: 'I love you. You have got to get out of this house.' So, I can sympathize with many retirees. That transition is real. You are not handed a job description on day one of retirement, and you kind of have to feel it out. So for me, retiring early was a really fun experiment. I got to toy with it, and then I realized I need to be around people."
Learn from History, Plan for Your Future
Teaching and writing have helped Dr. Moore rediscover the connection and purpose he was missing as an early retiree.
And studying 300 years of American money thinking has sharpened an important message for his students that all soon-to-be retirees should also take to heart: planning ahead and working with a trusted decision partner can help you approach the future with greater confidence.
" They need an optimistic message, but absolutely no one is getting rewarded for telling them that," Dr. Moore says. “No one is saying, 'You can do what other generations do, and it might actually be easier for you to do it.' I call it 'Big Woe,' the ‘despair industrial complex' that has just inundated us with negativity. And we have got to step back and go, is this real? Because actually, historically speaking, congratulations, you live in the best moment ever to be alive."
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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