The Lure of Great Wealth

One of the most popular articles on The New York Times website late last year was "The Gilded Cage: Lure of Great Wealth Affects Career Choices."

I think I can guess the theme of the article, as well as why it was so widely read and shared. It promises at once to offer an answer to the question of "How do I get rich?" -- the second most popular question in the history of man, closing in rapidly on the longtime favorite, "What's for dinner?" -- and it offers solace for those not in the "great wealth" category.

Many who are successfully pursuing wealth are indeed living in a gilded cage -- they're trapped in at least a partially unfulfilling life because they've traded doing what they would really like to do for a bigger paycheck.

Get rich easier
And that's too bad for them, because truly significant wealth is achievable for virtually all in our society who have but three traits:

  1. Employment in a job they truly like and can develop in
  2. Sufficient discipline with their savings
  3. A sound investment plan

I don't know what constitutes great wealth in the mind of most people, but I'd guess eight figures -- $10 million -- would qualify for some. How do you get there with a savings and investing plan, and with the job you love, from a standing start of $0?

Do you have to take great risks with your savings? Attempt to figure out whether XM Satellite Radio (Nasdaq: XMSR  ) will turn losses into huge profits and when? Or whether $3 stocks like Sanmina-SCI (Nasdaq: SANM  ) or (pre-reverse split) JDSU (Nasdaq: JDSU  ) can turn around years of miscues and return to past glories, despite steep competition in a fast-moving landscape?

You don't need to do any of that.

The market's best returns
Although large-cap growth companies with volatile stocks and uncertain futures get all the press in the world, they are not the ones that history shows will best help individual investors earn great wealth. Compare the historical returns of large-cap growth stocks -- which includes the results of long-term monsters such as Genentech (NYSE: DNA  ) , Gilead Sciences (Nasdaq: GILD  ) , EMC (NYSE: EMC  ) , and Texas Instruments (NYSE: TXN  ) -- with those of the total stock market and of small-cap value stocks from 1927 to 2005:

Large-cap growth

9.5%

Total stock market

10.0%

Small-cap value

15.4%

What does 15.4% compound out to, over a lifetime spent working in a job you love? If you were simply to maximize your IRA contributions (currently $4,000 a year) and 401(k) contributions (currently $15,000) over a 40-year working lifespan, from a standing start of $0, you'd have $37 million at the end. Does that qualify as great wealth?

The Foolish final word
Figures like that really should be luring you to change your behaviors. What shouldn't be luring you is the idea of trading in doing what you love for 10, 12, or 14 hours a day of gilded-cage riches and no time for your friends and family.

Instead, consider learning more about small-cap value stocks. Our Motley Fool Hidden Gems newsletter follows small-cap companies and has actually produced returns far in excess of even the historical small-cap value returns -- 21% average annualized returns over the past four years. Compound that rate out for 40 years, putting aside $19,000 a year, and you wind up with $185 million to enjoy your retirement -- and look back on a life well spent.

Take a free 30-day guest pass to Hidden Gems to learn about how we chose the more than 40 currently recommended companies that have produced an early start to great wealth.

And keep the job you love for life.

The article was originally published on Nov. 30, 2006. It has been updated.

Bill Barker does not own any of the companies mentioned in this article. The Motley Fool has a disclosure policy.


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